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Kurdistan passes new oil bill
Published: 5/10/2013
Iraqi
Kurdistan's regional parliament has passed an oil bill to little
fanfare that will allow it to export crude independently if the central
government in Baghdad fails to pay the Kurdistan Regional Government
(KRG) its share of oil revenues and exploration costs.
IHS Global Insight perspective
Significance
Kurdistan's
oil bill indicates the KRG's eagerness to make sure it can monetise oil
and gas operations in Kurdistan without relying on Baghdad's erratic
budget allocations.
Implications
Kurdistan realises that its oil exports via Turkey will increase and that it can become economically independent from Baghdad.
Outlook
This bill will add more fuel to the ongoing oil saga in Iraq and its de facto autonomous Kurdistan region.
The
regional parliament in the semi-autonomous Iraqi Kurdistan region in
northern Iraq has passed a law on 23 April to little fanfare that will
allow it to export crude independently if the central government in
Baghdad fails to pay the Kurdistan Regional Government (KRG) its share
of oil revenues and exploration costs. Goran Azad, an MP with the
Patriotic Union of Kurdistan, said in quotes carried by Platts: "The law
says that if the Iraqi government fails to deliver Kurdistan's share of
Iraq's revenue, the region will have power to sell its own oil without
consulting Baghdad to fill its financial gaps." The Patriotic Union of
Kurdistan shares executive power with Kurdistan's president Massud
Barzani's Kurdistan Democratic Party.
As part of the law, the
regional parliament has included a 90-day deadline for the KRG to define
what it believes it is owed by Iraq's central government. The KRG will
have a right to officially demand that amount from the federal Finance
Ministry in Baghdad. If the ministry does not respond within 30 days,
then the law authorises the KRG's Ministry of Natural Resources to begin
exporting oil produced in the region unilaterally to compensate for
unpaid dues from the central government. Moreover, if Baghdad replies
but fails to pay or agree to pay the funds within 90 days of the demand,
the KRG "has the right to take action it deems appropriate for
obtaining its financial rights under the provisions of this law,
including the production, export and sale of crude oil and gas to cover
any financial debts the federal government refrains from paying,"
according to the law.
The Kurdistan Parliament has introduced
this legislation to provide the KRG with the political power and legal
authority to calculate and define itself the amount of oil payments that
it is due from the Iraqi central government. By introducing a regional
law with reference to the Iraqi constitution, the KRG believes that it
has developed a legal route to legimitise its independent export plans.
"It's an insurance policy – that we lawfully get what's rightfully ours,
one way or another," said Qubad Talabani, KRG Minister for
Coordination, in quotes carried by Platts.
Given the KRG's
strained relations with the central government in Baghdad, the KRG is
keen to fill the revenue gap that the central government has left behind
in Kurdistan state coffers. To achieve this, the KRG is seeking to
continue exporting Iraqi Kurdish oil independently to Turkey. Baghdad
however considers Kurdish oil exports as smuggling as it believes the
country's SOMO (state oil marketing organisation) has the sole authority
to sell crude internationally – a view that the KRG itself views as
unconstitutional.
Furthermore, with Turkey's backing, the KRG is
confident that it has the ability to monetise its oil and gas – a
prospect that many oil operators in Kurdistan are eagerly awaiting given
the lack of consistent payments that these companies have experienced
over the last years. The KRG has signed more than 50 production sharing
contracts in the past decade with companies including small and
medium-sized players such as Genel Energy, DNO, Gulf Keystone and
Gazprom Neft, and majors such as ExxonMobil, Chevron, and Total. In
particular, independent operators have developed Kurdistan's fields
under KRG control to an output capacity of around 370,000 b/d of crude.
But given the political difficulties, the region's two main refineries
can only handle 76,000 b/d as the remainder is sent to either unofficial
plants or often shut in – especially because the KRG and contracting
companies have halted crude contributions into the Baghdad-managed
Iraq-Turkey (Kirkuk-Ceyhan) Pipeline in December 2012 without the
government agreeing on overdue payments to the KRG.
Outlook and implications
The
KRG has undoubtedly become more assertive in formulating and
implementing its own energy oil policy without allowing it to be
obstructed by what it perceives illegal and political hurdles employed
by Baghdad. Meanwhile, Kurdistan has realised that it has the potential
to monetise its hydrocarbons without relying too much on the central
government. In early January it started trucking small volumes of around
60,000 b/d via Turkey and sold its first cargo to traders on the global
market. Within this year Kurdistan will be able to pump oil through new
pipeline to the Turkish border with the potential to link it with
Kirkuk-Ceyhan pipeline with Turkey's approval. It is no surprise then
that the KRG regards the prospect of direct oil sales as a means to be
less reliant on Baghdad's erratic budget allocations to Kurdistan. This
also means that Kurdistan has found a route to economic independence –
an objective that may be politically less contentious than the outright
call for independent Kurdish statehood – a political demand that
Kurdistan's neighboring states would certainly oppose.
While, the
Iraqi central government has threatened lawsuits against anyone trading
in oil not sold officially through the SOMO earlier this year and
officials close to Iraqi prime minister Nouri al-Maliki have said that
Iraqi security forces could intervene at drill sites run by foreign oil
companies in disputed areas outside of the official Kurdish authority,
the contentious nature of the bill will most likely complicate the
delicate rapprochement between both sides following the KRG prime
minister Nechirvan Barzani's visit to Baghdad to meet with the Iraqi
prime minister Nouri al-Maliki.
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Published: 5/10/2013
Iraqi
Kurdistan's regional parliament has passed an oil bill to little
fanfare that will allow it to export crude independently if the central
government in Baghdad fails to pay the Kurdistan Regional Government
(KRG) its share of oil revenues and exploration costs.
IHS Global Insight perspective
Significance
Kurdistan's
oil bill indicates the KRG's eagerness to make sure it can monetise oil
and gas operations in Kurdistan without relying on Baghdad's erratic
budget allocations.
Implications
Kurdistan realises that its oil exports via Turkey will increase and that it can become economically independent from Baghdad.
Outlook
This bill will add more fuel to the ongoing oil saga in Iraq and its de facto autonomous Kurdistan region.
The
regional parliament in the semi-autonomous Iraqi Kurdistan region in
northern Iraq has passed a law on 23 April to little fanfare that will
allow it to export crude independently if the central government in
Baghdad fails to pay the Kurdistan Regional Government (KRG) its share
of oil revenues and exploration costs. Goran Azad, an MP with the
Patriotic Union of Kurdistan, said in quotes carried by Platts: "The law
says that if the Iraqi government fails to deliver Kurdistan's share of
Iraq's revenue, the region will have power to sell its own oil without
consulting Baghdad to fill its financial gaps." The Patriotic Union of
Kurdistan shares executive power with Kurdistan's president Massud
Barzani's Kurdistan Democratic Party.
As part of the law, the
regional parliament has included a 90-day deadline for the KRG to define
what it believes it is owed by Iraq's central government. The KRG will
have a right to officially demand that amount from the federal Finance
Ministry in Baghdad. If the ministry does not respond within 30 days,
then the law authorises the KRG's Ministry of Natural Resources to begin
exporting oil produced in the region unilaterally to compensate for
unpaid dues from the central government. Moreover, if Baghdad replies
but fails to pay or agree to pay the funds within 90 days of the demand,
the KRG "has the right to take action it deems appropriate for
obtaining its financial rights under the provisions of this law,
including the production, export and sale of crude oil and gas to cover
any financial debts the federal government refrains from paying,"
according to the law.
The Kurdistan Parliament has introduced
this legislation to provide the KRG with the political power and legal
authority to calculate and define itself the amount of oil payments that
it is due from the Iraqi central government. By introducing a regional
law with reference to the Iraqi constitution, the KRG believes that it
has developed a legal route to legimitise its independent export plans.
"It's an insurance policy – that we lawfully get what's rightfully ours,
one way or another," said Qubad Talabani, KRG Minister for
Coordination, in quotes carried by Platts.
Given the KRG's
strained relations with the central government in Baghdad, the KRG is
keen to fill the revenue gap that the central government has left behind
in Kurdistan state coffers. To achieve this, the KRG is seeking to
continue exporting Iraqi Kurdish oil independently to Turkey. Baghdad
however considers Kurdish oil exports as smuggling as it believes the
country's SOMO (state oil marketing organisation) has the sole authority
to sell crude internationally – a view that the KRG itself views as
unconstitutional.
Furthermore, with Turkey's backing, the KRG is
confident that it has the ability to monetise its oil and gas – a
prospect that many oil operators in Kurdistan are eagerly awaiting given
the lack of consistent payments that these companies have experienced
over the last years. The KRG has signed more than 50 production sharing
contracts in the past decade with companies including small and
medium-sized players such as Genel Energy, DNO, Gulf Keystone and
Gazprom Neft, and majors such as ExxonMobil, Chevron, and Total. In
particular, independent operators have developed Kurdistan's fields
under KRG control to an output capacity of around 370,000 b/d of crude.
But given the political difficulties, the region's two main refineries
can only handle 76,000 b/d as the remainder is sent to either unofficial
plants or often shut in – especially because the KRG and contracting
companies have halted crude contributions into the Baghdad-managed
Iraq-Turkey (Kirkuk-Ceyhan) Pipeline in December 2012 without the
government agreeing on overdue payments to the KRG.
Outlook and implications
The
KRG has undoubtedly become more assertive in formulating and
implementing its own energy oil policy without allowing it to be
obstructed by what it perceives illegal and political hurdles employed
by Baghdad. Meanwhile, Kurdistan has realised that it has the potential
to monetise its hydrocarbons without relying too much on the central
government. In early January it started trucking small volumes of around
60,000 b/d via Turkey and sold its first cargo to traders on the global
market. Within this year Kurdistan will be able to pump oil through new
pipeline to the Turkish border with the potential to link it with
Kirkuk-Ceyhan pipeline with Turkey's approval. It is no surprise then
that the KRG regards the prospect of direct oil sales as a means to be
less reliant on Baghdad's erratic budget allocations to Kurdistan. This
also means that Kurdistan has found a route to economic independence –
an objective that may be politically less contentious than the outright
call for independent Kurdish statehood – a political demand that
Kurdistan's neighboring states would certainly oppose.
While, the
Iraqi central government has threatened lawsuits against anyone trading
in oil not sold officially through the SOMO earlier this year and
officials close to Iraqi prime minister Nouri al-Maliki have said that
Iraqi security forces could intervene at drill sites run by foreign oil
companies in disputed areas outside of the official Kurdish authority,
the contentious nature of the bill will most likely complicate the
delicate rapprochement between both sides following the KRG prime
minister Nechirvan Barzani's visit to Baghdad to meet with the Iraqi
prime minister Nouri al-Maliki.
[You must be registered and logged in to see this link.]
