Tuesday, June 28, 2011
By: Shwan Zulal
The long drawn out dispute over the validity of oil and gas contacts in Kurdistan Region continues. Investors and oil companies are slowly becoming convinced that Kurdistan Region will dig its heels and make sure it keeps control of its oil and gas. It must feel like being Sisyphus for Kurdish politician dealing with Baghdad and investors waiting for a positive outcome, as every time there is a gilmore of hope, party politics and mistrust unravels progress.
In the past, US and UK governments have kept advising against involvement of oil companies in Kurdistan Region, despite being the largest contributor to the military action overthrowing Saddam and the reconstruction efforts in Iraq. There was also the risk of alienating the central Iraqi government as it has warned companies entering into oil and gas contract with KRG of being blacklisted and barred from bidding forIraqi oil contracts. In spite of these warnings, many UK and some US oil exploration companies along with Chinese, Koreans and others have entered into PSCs and PSAs in Kurdistan Region and some have already started exporting oil.
In a recent article, the UK Foreign Secretary, William Hague, has praised the KRG (Kurdistan Regional Government) and it appears that there is a shift in UK policy towards Kurdistan Region. The Foreign Secretary seems to be trying to build bridges with KRG and give the signal that UK is ready to do business in Kurdistan Region. Hague's comments and the recent visit by UK former PM, Sir John Major, to the Region addressing Kurdish Parliament and opening the British Consulate in Erbil, indicate a clear shift in UK government policy towards Kurdistan Region.
The US has so far failed to acknowledge Kurdistan Region publicly and encourage investment in the oil and gas sector. This policy reflects on lack of US companies operating in Kurdistan. And is partly due to US administration's efforts not to be seen taking side with the Kurds and upset other Iraqi factions not mentioning the neighbouring countries and the Arab world. Furthermore, it is a clear indication that the US is committed to a united Iraq. The policy has also disadvantaged US companies and slowly eroding US's strong relations with Kurdistan Region.
Meanwhile, Chris Bowers, the British Consul General in Erbil, stressed the need to invest in the gas infrastructure in Kurdistan Region and highlighted the issue. Bowers, reiterated UK's commitment to enable Kurdistan Region in Iraq to supply gas to Turkey and Europe in order to contribute to EU energy security.
It is no coincidence that British HOIL (Heritage Oil) has discovered one of the biggest gas finds in Miran block near Slemani (Sulaimaniyah) earlier this year. While the discovery is the largest in Iraq for 30 years, investors were disappointed that it was not oil and the company share price suffered as investors to fright. The main issue with gas finds in Kurdistan is lack of infrastructure. While some smaller oil producers can use Tankers to ship oil as a desperate measure if there are no pipelines, when dealing with gas it is a much more complicated process, therefore pipelines and infrastructure is essential.
UK government appear to be giving the impression that they would like to promote UK based companies to develop the gas infrastructure in Kurdistan, which is to be welcomed, as British companies are leaders in the field.
While the most talked about project in Kurdistan Region is connecting the Region to the Southern Corridor though Turkey and supply Europe. The political implication of such project is still under discussion. Turkey would probably want reassurances and try to stifle Kurdish independence ambitions and Baghdad has its own ideas of preventing Kurdistan Region from selling its oil and gas directly. This was evidence in the latest understanding between EU and Iraqi deputy PM for energy, Hussein Shahristani. Meanwhile Europe needs to diversify its energy supply and stop overdependence on Russian gas.
Developing infrastructure would be the key to Kurdistan Region's success. And having UK on board as a partner and allowing British companies taking a lead in the Region's development would be a bonus for Kurdistan Region's future.
While these developments are very exciting, KRG must accelerate reforms and curb institutional and personal corruption. The investment legislation must be overhauled and replaced with concrete laws that reassures investors. The more transparent KRG becomes the more credibility it would acquire. Once overdue reforms carried out, multinational companies and influential states like UK and US would find it politically much easier to do business in Kurdistan Region.