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pipe dreams or reality? the real deal behind turkish-kurdish oil plans

Shwan Zulal
In May, Turkey and Iraqi Kurdistan announced they would build pipelines taking oil and gas from Iraq into Turkey, then possibly Europe. But behind the energy dream, lurks a nightmare of militant Kurdish…
20.06.2012  |  Erbil

To some it is a dream come true, others think it’s a nightmare that will never see the light of day. The May 2012 announcement by Ashti Hawrami, the Minister of Natural Resources in the semi-autonomous state of Iraqi Kurdistan that they would build new oil and gas pipelines to Turkey shook the Iraqi government in Baghdad.

The first phase of pipeline construction is supposed to be completed by October this year and the second phase is due to be finished by August 2013. Another pipeline is to be built by 2014.

Baghdad reacted unhappily to this announcement, saying – as they had done with other oil deals – that the Kurds were working outside of the national remit. National Deputy Prime Minister for Energy, Hussein al-Shahristani, was dismissive of the pipelines and local media were also rather negative about it.

Yet it appears that Baghdad feels that that the northern state of Iraqi Kurdistan is slipping out of its control. For the last five years Baghdad has been trying to reign in the Kurdish government, especially when it comes to oil and gas.

Shahristani has blacklisted oil companies operating in Iraqi Kurdistan and even ensured that, during the recent lacklustre fourth round of bidding to do oil work in Iraq, there was a new clause preventing any oil companies from going into Iraqi Kurdistan without Baghdad’s permission, as oil major Exxon Mobil did in November 2011.

It is true though that any such pipeline from Iraqi Kurdistan into Turkey will face more than a few challenges.

Needless to say the success of any pipeline will also hinge on the commercial realities of the deal and what stockholders would get out of it. Other dimensions are strategic and security related. Apart from annoying Baghdad, the Iranians and Russians are also likely to be unhappy. Iran has a long term contract, until 2021, to supply gas to Turkey at higher-than-market prices (the two countries are currently involved in a legal dispute over this issue). And Russia would see any potential new supplier to Europe as competition for its own gas. Additionally Russia is one of Turkey\'s largest gas suppliers, supplying 58 per cent of the Turkish gas consumption.

In early June, Kurdish energy minister Hawrami said that, by 2015, Iraqi Kurdistan could be producing one million barrels of crude oil per day, with that doubling by 2019. However it’s not clear how much of that would be exported, how much would reach other countries outside of Turkey or whether the crude would only be refined and used for power generation inside Turkey.

Really though, the main obstacle is the political dilemma facing Turkey - it’s cooperation on the pipelines means it must recognise a Kurdish entity, or even a Kurdish identity, something it has never wanted to do because of its own “Kurdish” problem, inside Turkish borders.

The outlawed Kurdistan Workers’ Party (or PKK) has been fighting for greater rights for the Kurds of Turkey and Kurdish autonomy since the early 1980s. The group is designated a terrorist organization by some countries and the violent conflict between Turkish authorities and the PKK has claimed tens of thousands of lives over the years. The PKK tend to be based in the inaccessible Qandil mountains on the Iraqi Kurdish side of the border and launch their attacks into Turkey from there. And the PKK has been known to target the oil and gas pipelines in Turkey.

However, although Turkey would not want to see Iraq split – “when we consider these [energy] projects, our priority is the territorial integrity of Iraq,” Turkey’s energy minister, Taner Yildiz, told the Financial Times recently - Turkey seems to believe a trade off can be arranged with the Iraqi Kurdish government. Although the Iraqi Kurdish authorities have made it clear that they will not confront the PKK militarily, they do have the option of cutting off the guerrilla group’s supply lines and limiting their activities in the region.

It is not yet clear as to whether this is on the bargaining table. But it is possible that it is, if Turkey is serious about doing a deal with the KRG, not just posturing.

As Chris Bowers, the British Consul General in Erbil, put it during a conference held in London this week, Iraq Petroleum 2012, “Turkey used to see the Kurdistan region through the prism of security - but now it looks at [Iraqi Kurdistan] through the prism of energy.”

“Turkey may have a historical fear of Kurdish nationalism but it has slowly come to terms with the huge benefits that stability and constructive relations with the Kurds bring,” Kurdish editor Bashdar Pusho Ismaeel wrote recently in local newspaper, the Kurdish Globe. “Ultimately money talks and no rational government can ignore the massive trade and energy opportunities that come with a growing economic power-house such as Kurdistan. Iraq is already Turkeys biggest trade partner, with Kurdistan accounting for the majority of that trade.”

There are also obvious international and regional ramifications. The discussion over pipelines is just a small part of ongoing problems between Erbil and Baghdad with wider, geo-political influencers also at work.

And lately relations between the Shiite Muslim-led coalition government in Baghdad, headed by Iraqi prime Minister Nouri al-Maliki and the authorities in Iraqi Kurdistan do not appear to be getting any friendlier.

In recent weeks, high ranking Iraqi Kurdish politicians have practised a kind of shuttle diplomacy between Turkey and Iraqi Kurdistan and statements have been made that indicate an increasing closeness between Erbil and Ankara and the growing distance between Baghdad and Erbil.

Both Iraqi Kurdistan, and now the Turkish, have sheltered the Iraqi Vice President Tariq al-Hashimi, against whom al-Maliki issued an arrest warrant late in 2011, sparking a political crisis. It appears that mainly Sunni Muslim Gulf countries like Qatar and Saudi Arabia are also happy to see Turkey causing trouble for al-Maliki’s government. Additionally Turkey has expressed its opposition to the conflicted Syrian regime whereas Iran has been more supportive; the Iraqi government has been mostly treading the stormy diplomatic waters in-between.

Nonetheless, although the pipeline deal has been announced, it is not yet clear what is driving such a deal for Turkey. Some have described current Turkish foreign policy as “neo-Ottoman-ism”.

Does Turkey intend to isolate PKK? Or it is a political statement aimed at Baghdad, and indirectly at Iran, a country that continues to become more influential in Iraq? Or both? At the moment, Turkish motives seem to involve a combination of all of the above but it is hard to say which is the major driving force for Ankara at the moment.

Meanwhile Iraqi Kurdistan have made it clear that they are eager to further strengthen the bilateral relationship with Turkey and that they relish the idea of being able to sell oil and gas directly to Turkey, and then on to Europe. However the red line for the Kurdish leadership is using military force against PKK.

One thing that is clear is that sooner or later Iraqi Kurdistan’s oil must reach the market. Comments made by Tony Hayward, former CEO of BP and current CEO of Genel Energy, a Turkey-based oil company with interests in Iraqi Kurdistan, at Iraq Petroleum 2012 indicate that many believe this. Hayward seemed to be covertly critical of Baghdad’s role in preventing international oil companies from operating in Iraqi Kurdistan – but as Hayward said, it would only be a matter of time before the oil made it to market.

His remarks sum up the inevitable and make it clear that it is in Turkey’s interest to take advantage of its strategic position as an energy transit nation – something the Turkish would love the Europeans to take serious note of too. And Turkey’s energy hunger, combined with the potential economic advantage, makes the possibility of a Kurdish-Turkish pipeline more than just a pipe dream.