The International Energy Agency’s Iraq Energy Outlook (2012) reports, “Alongside its announcement of 143 billion barrels of proven reserves, the Ministry of Oil stated in 2010 that Iraq’s undiscovered resources amounted to some 215 billion barrels.” While the former figure is equivalent to almost 9 percent of the world’s proven oil reserves, the latter is more than 13 percent of the total. Iraq also has significant natural gas reserves that constitute some 1.5% of the world's total, making Iraq 13th among global reserve holders.
For neighboring Turkey — which imports 93% of the oil it consumes and 98% of its gas — Iraq offers an excellent source of potentially cheaper energy and an opportunity to diversify its supply. Iraq's favorable exploration, development and production costs as well as lower transportation expenses highlight its importance for Turkey, which paid $60.1 billion for its energy imports in 2012. That year, 12% of its oil imports came from Iraq, while 41% was imported from Iran.
The Turkish Petroleum Corporation (TPAO), the state-run oil and gas exploration and production company, began trying to win bids in Iraq in 1994. The company finally successed (with partners) in 2009, winning five successive bids, all of them located around Basra: the Siba gas field, Mansuriyah gas field, Badra oil field, Missan oil field and Block 9.
This modest success, capping a 15-year effort, now seems to be threatened by a Turkish government decision to apparently transport oil and gas produced in northern Iraq without the approval of the Iraqi federal government. Modest volumes were being transported using road tankers, but Ankara and the Kurdish Regional Government (KRG) then declared their intention in 2012 to jointly construct oil and gas pipelines to transport larger quantities. The volume for the oil pipeline was announced as starting at 200,000 barrels per day (bpd) with the expectation of an increase to 1 million bpd. If a gas pipeline is built, it would have a capacity of 10 billion cubic meters a day.
In the inevitable reaction, Iraqi Deputy Prime Minister Hussain al-Shahristani, in an interview with the BBC on Nov. 15, 2012, said, “If Turkey does not give up supporting pipelines to transport northern Iraq’s oil and gas directly through Turkey, then the Iraqi central government would not hesitate to block Turkish companies from investing or bidding in Iraq.” Shahristani further stated, “According to the bilateral agreement between the governments of Turkey and Iraq, Turkey should exclusively work with the Iraqi central government, which is the only authority to permit the exports according to the Iraqi constitution.”
Prime Minister Nouri al- Maliki accused Turkey of wanting more than oil, stating, “Turkey made a deal with Iraq's Kurdish administration, and an agreement aimed to divide Iraq.” Maliki pointed to reports from politicians in the region as evidence that such a deal was in fact made.
How Iraqi oil and gas should be managed lies in articles 111 and 112 of the constitution. Article 111 states, “Oil and gas are owned by all the people of Iraq in all the regions and governates,” and article 112 defines the framework for management of oil and gas extraction from current fields as well as newly discovered ones. In both cases, authority is given to the central (federal) government, albeit along with the producing regions and governates. Article 112 further states that any related activity is to be regulated by law. (Of note, the Hydrocarbon Law is awaiting ratification by the Iraqi parliament.) Thus, the federal government considers the Turkish and KRG efforts a violation of the Iraqi constitution and a challenge to its sovereignity.
A list of other contentious issues have further complicated relations between Iraq and Turkey, including Ankara's refusal to extradite Tariq al-Hashimi, the former Iraqi vice president who was charged with running death squads and sentenced to death in absentia in 2012. As a consequence of the prevailing tensions, in November 2012 the "Iraqi cabinet [had] expelled Turkey’s state-owned TPAO from the consortium that was granted the rights to explore Block 9, and has asked Kuwait Energy to take over the shareholding.” It seems fair to say that if the Turkish government continues with its current approach, it should come as no surprise if the other four bids are also voided or worse.
Iraqi Oil Minister Abdul Kareem Luaibi announced on Jan. 16 that Baghdad plans to sue Genel Energy, the first direct exporter of oil from northern Iraq, and perhaps cut government funding allocated for the region unless it ceases what he labeled as smuggling. Genel Energy is a joint Turkish-British private company following a recent reshuffle of its equity structure.
The possible consequences of Turkish policy could become a broader problem because of concerns in Washington. Francis Ricciardone, the US ambassador to Turkey, reflected on them when he said, “Turkey and Iraq have no choice but to pursue strong ties if they want to optimize the use of Iraq’s resources and export them via Turkey. If Turkey and Iraq fail to optimize their economic ties, the failure could be worse than that. There could be a more violent conflict in Iraq and [the chances of] disintegration of Iraq could be [strengthened].” During the last days of 2012, relations between the Baghdad government and Iraqi Kurds became so tense that they both reinforced military positions along their internal border.
Ricciardone's words appear to have fallen on deaf ears, at least at the government level, but perhaps someone in Ankara has the capacity to discern the agenda evident in the words of Nechirvan Barzani, prime minister of the KRG, in an interview with Time magazine in December 2012. When asked, "Is it possible to say that you are closer than ever to an independent Kurdistan?," Barzani responded, "I believe, yes, we have a very good opportunity. But we have a lot of challenges as well. How we can — I mean an independent Kurdistan — first of all we have to convince at least one country around us. Without convincing them, we cannot do this. Being landlocked we have to have a partner, a regional power to be convinced and internationally, a major power to be convinced to support that. What we want right now is to have an economic independence within Iraq.”
The Turkish government’s efforts toward the construction of oil and gas pipelines directly connecting the KRG-controlled oil and gas fields to Turkey without the approval of the Iraqi federal government could be a step toward fulfilling the first "challenge" cited by Barzani. After economic independence within Iraq, the eventual target it seems is an independent Kurdistan. The one country the Kurds need to support them will reinforce their landlocked country's quest for independence. What country could they possibly have in mind?
Necdet Pamir is chief editor of EnerjiEnergy.com and an instructor at Bilkent University.