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 Turkey’s oil diplomacy with Iraq's Kurdistan

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Turkey’s oil diplomacy with Iraq's Kurdistan  30.7.2012 
By David O'Byrne - FT

Turkish oil trucks at Turkey-Iraqi Kurdistan border. Photo:  See Related Links
July 30, 2012

Ordinarily, news of six road tankers carrying tiny quantities of unrefined crude oil 700km to a coastal port would not warrant much comment.

But the fact that six Turkish tankers have carried crude from Kurdistan region in Iraq's north to the Turkish port of Iskenderun is a different matter.

The trucks entered Turkey on Thursday carrying crude extracted by companies operating in northern Iraq in defiance of the central government. Their final destination was unclear but it appeared the crude would be exported from one of several port facilities around the bay of Iskenderun, two of which are operated by Botas, Turkey’s state pipeline operator.

According to an announcement this month by Taner Yildiz, Turkey’s energy minister, the cross border trade will be allowed to increase rapidly, with crude being traded for petroleum products to be used in the Kurdish enclave. This trade flourished before the US invasion of Iraq in 2003 and was allowed to continue until 2007, when it was stopped following protests from the Iraqi government.

Iraq’s central government in Baghdad and the Kurdistan Regional Government (KRG), which has enjoyed effective autonomy since the early 1990s, have continually failed to reach an accommodation over the exploitation of hydrocarbon reserves in the region.

Baghdad maintains that all of Iraq’s mineral resources remain the property of the Iraqi state and that the KRG has no right to sign contracts with oil companies for their extraction or to organise exports.

The KRG has ignored Baghdad and signed production sharing contracts with more than 40 operating companies, including the LSE quoted Genel Energy, headed by former Tony Hayward, former boss of BP. Last week, Baghdad banned Chevron from bidding for licences elsewhere in Iraq after it reached a deal with the KRG.

Baghdad says the contracts – which give operators a share in oil profits – are illegal, as it only recognises service contracts under which operators are paid an agreed fee.

However, three years ago Baghdad allowed crude from the region to be exported through Iraq’s main crude export pipeline to Turkey’s Mediterranean oil hub at Ceyhan, with the KRG receiving a share of the revenue. Oil companies were allowed to claim expenses but no profits.

Those exports ended in April after the KRG complained it had received no money since May 2011. Soon afterwards, Yildiz said Turkey would allow the trade to resume.

The decision looks risky for Ankara. Turkish officials has stressed that recognising the KRG’s right to control its oil in no way amounts to recognition of the enclave’s independence from Baghdad.

With its own sizeable and often restive Kurdish population, Turkey is keen avoid the creation of an independent Kurdish state on its south eastern border – even one reliant on Turkey for revenue from oil exports.

However, with Baghdad appearing increasingly unwilling to compromise its Kurds, the KRG will look to Turkey for a solution. Turkey appears keen to provide one in return for the stability an established hydrocarbon trade will bring.

Clearly, that cannot be provided by a few road tankers, and plans have already been mooted for pipelines.

Calik Enerji, a Turkish company whose chief executive is the son in law of prime minister Tayyip Erdogan, has applied for permission to build an oil pipeline from the Iraq-Turkey border to Ceyhan. Siyah Kalem, another Turkish company, has applied for a license to import gas from fields in the Kurdish enclave.

Either pipeline, if completed, would lock Turkey and the KRG into a long term, mutually beneficial relationship.

Equally significantly, it would oblige the KRG to address the issue of the Kurdistan Workers Party (PKK), a Kurdish separatist group fighting to establish a Kurdish state in south east Turkey which operates from bases in northern Iraq.

Described as a terrorist group by both the US and the European Union, the group has frequently targeted Turkey’s pipeline infrastructure. In the past month it claimed responsibility for sabotaging the Kirkuk-Ceyhan oil pipeline and the Iran-Turkey gas pipeline.

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