Saturday, May 28, 2011
Energy pact between EU & Shahristani leaves KRG & Turkey in the cold
By: Shwan Zulal
European Union (EU) and Shahristani have announced that they have reached an agreement on the future of exporting oil and Gas from Iraq to Europe. EU have secured a deal with the Iraqi deputy prime minister for Oil, Hussain Shahristani, which is set to open the door for the EU to receive Iraqi oil and gas after an improved strategic energy partnership was drafted in Brussels on Thursday.
“We acknowledge that all entities party to the Southern Corridor project must observe Iraqi laws pertaining to gas production and export from Iraq,” the joint declaration read. The European Union’s Energy Commissioner, Guenther Oettinger and Shahristani, signed a declaration on an enhanced strategic energy partnership, which paves the way for oil and gas delivery to Europe via the Southern Corridor. The significance of this agreement to Kurdistan Region and anyone connected to Kurdish oil cannot be underestimated. The EU acknowledges Iraqi central government's authority on all export of oil and gas from the country. This means that Kurdistan Region, which has its own government and parliament, and signed oil contracts with over 40 companies, has to go through the Iraqi government to for any export to EU.
The precise detail of the agreement is not yet clear and Iraqi parliament as well as the Kurdish government may and will have objection to the deal. Although the details yet to be known, it's almost certain that the latest development will put Kurdistan Region and Turkey on a collision course with the Iraqi Government and the EU.
Shahristani has been at odds over the Kurdistan Regional Government (KRG) oil contracts and have refused to recognise them, saying the contracts fall foul of the Iraqi constitution and they need to be renegotiated. While some payments to the companies involved in Kurdish oil exports has been approved by the Iraqi government after refusing to pay the companies since 2009, this agreement will make investors even more confused at the prospect of resolving the contract issues soon.
Turkish companies have been investing heavily in the region and Turkey has been forging close ties with KRG as relations have been worming up in recent years. Turkish Genel Energy is aiming to become the main player in the region and only recently announced plans to expand its operation in Kurdistan Region. In an effort to accelerate exporting the untapped oil and gas reserves in Kurdistan Region, new pipelines have been proposed connecting Kurdistan oil filed to Turkey. By doing this Turkey hopes to increase its leverage on the EU and make use of it in negotiating its entry to the Union. Nevertheless, the EU has outmanoeuvred Turkey and gone ahead with making this agreement with the Iraqi deputy PM. Although Iraq has the capacity to export nearly 2.5m bopd through Turkey and it is set to continue in the future. A Sunni Turkey would not enjoy losing the concessions KRG prepared to give and find it increasingly difficult dealing with Shiite dominated Iraqi Government.
Kurdistan Region does understand that the only realistic way of becoming an oil-producing nation would be through good relations with Turkey. In return, the Turkish government has grand plans to become the star of the region and play a large role in future supply of oil and gas to Europe. Allowing Kurdistan region to become an oil-exporting nation would benefit the Turkish economy immensely plus it will enhance the countries strategic importance to Europe, hence the much coveted membership of the EU.
Investors, who have injected over $10bn into the extensive exploration program in Kurdistan, feel rather confused and bewildered at the state of affairs in Iraq. Mixed massages coming out of Iraq and Kurdistan continually, meanwhile the latest deal between Shahristani and EU can be described as a tremendous blow for KRG and oil companies operating in the region. Kurdistan Region has ambitions to become a leading player in exporting oil and gas in the region and only last week asked Gulf Keystone (British oil Exploration Company) to prepare exporting 5000 bopd. Shahristani's tactics has just made the situation much more complicated therefore; investors would be closely watching the reaction of Turkey and KRG.