The potential of Iraq, as the world’s fifth and thirteenth biggest oil and natural gas reserve holder to meet the growing demand of the Asian market, has become increasingly evident in recent years. According to the International Energy Agency’s (IEA) statistics, Iraq has two major production centers, comprising the Northern, and Southern and Central fields, which constitute 21 percent and 79 percent of total oil production capacity respectively.
The IEA estimates the area that the Kurdish Regional Government (KRG) controls contains around four billion barrels of oil but the entire region still remains under-explored. While the KRG is in control of the Northern fields, the Southern and Central fields are under the control of the central government in Baghdad and this divide reflects the current geography and politics in Iraq.
Given the fact that production fields in Iraq are mainly land-locked, exportation will require secure transnational pipelines to expand Iraq’s oil output. However, transnational pipelines carry various risks namely the threat from Daesh which has been taken into account in the global oil supply glut that has resulted in the collapse of oil prices.
Therefore, limitations that the KRG faces due to the geographical location could be overcome by mutually beneficial commercial ties with Turkey. These ties would strengthen relations between both parties and potentially secure the KRG’s capacity to transport oil to the global market.
In keeping with diversification trends, the KRG should diversify its export routes to seek alternative options so as not to be heavily dependent on one particular source. Given the current geography of the area controlled by the KRG, available options for the KRG to export oil are through Iran, Syria, Jordan and Turkey.
The construction of an oil pipeline between the KRG and Iran, although seemingly geographically logical, is not economically viable considering that the KRG’s primary oil market is Europe. Assuming that the pipeline is constructed from the KRG to Iran, oil exports from the Persian Gulf to potential Asian markets requires shipment that would inevitably cost more than Mediterranean pipeline routes.
Additionally, in recent years the relationship between the KRG and Iran has been uncooperative and is unlikely to recover to a level of a credible energy relationship anytime soon. Apparently, the Iranian option is not the most promising and therefore, is unlikely to be on the table for the KRG’s administration.
Another option is Syria but the ongoing conflict and constant threat of Daesh has ensured that Syria is also an impossible partner in the years ahead. Even before the Syrian war, and despite the Iraq Petroleum Company (IPC) pipeline that passed through Syrian land between the 1930’s and 1960’s which proved a success in the region, the years following Iraq’s heavy dependence on this pipeline were used for political leverage by Syria over the Ba’ath regime of Iraq and subsequently resulted in the closure of the pipeline.
Assuming that Syria and Iraq end the terror of Daesh and settle their internal conflict in their home countries, the possibility of exporting Iraq’s Kurdish Regional Government oil through Syria or even Jordan do not look like promising alternatives since tribal groups in the Western Anbar province of Iraq have attacked the Kirkuk-Ceyhan Pipeline hundreds of times. Therefore, a new pipeline on this route would not only suffer from exorbitantly high capital expenses for construction, but would also likely be exposed to security threats.
The potential role that Turkey would likely play in the KRG’s oil and gas future will be covered in next week’s article.