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Kurdish Energy And The EU: Time For A
(Different) Bear Hug?
14.9.2011
By Shwan Zulal - ekurd.net |
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September 14, 2011
A decision by several European countries to phase
out nuclear production will leave the continent even
more exposed to Russia as their main supplier.
Alternative solutions mooted so far range from
renewable types of generation to natural gas piped
from the Caspian region. Increasingly, the
resource‐rich Kurdistan region in northern Iraq
appears as a viable source of supply. However,
political infighting inside Iraq, as well as
emerging rivalries between neighbouring Turkey and
Iran are curbing the region’s prospects for
progress. Furthermore, Brussels’ recent actions may
be sending confusing signals to the Kurdistan region
at a time when the two need each other most, as
Shwan Zulal, a political risk analyst specialising
in the area, argues.
The semi-autonomous Kurdistan region in northern
Iraq has one of the last untapped onshore oil and
gas reserves anywhere around the world.
During Saddam Hussein’s reign, the region remained
unexplored, but since the first Gulf War, Kurds have
been running their own affairs and have been
fighting to take advantage of the region’s natural
resources to build up their economy.
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Shwan Zulal is a political risk analyst |
Geopolitics, local
disputes and sanctions prevented the Kurdish region
from developing the energy sector until the fall of
Saddam in 2003.
Since then the Kurdish Regional Government (KRG) has
aggressively pursued a policy of taking ownership of
oil and gas within its borders and other Kurdish
areas known as the "disputed territories" under the
Iraqi Constitution article 140.
Despite vehement opposition from Baghdad, and a lack
of enthusiasm from the US for investments in the
area, Kurdish authorities have managed to attract
more than 40 foreign oil and gas exploration
companies and awarded them PSCs (Production Sharing
Contracts),www.ekurd.netas
opposed to the less desirable TSCs (Technical
Service Contracts) on offer from Baghdad.
Some US companies could not resist the temptation
and snapped up Kurdish oil, despite question marks
raised by US authorities about the legality of such
contracts.
Following Baghdad’s threats to blacklist any
companies entering Kurdish PSCs, many oil and gas
majors stayed away from the Kurdistan region while
eyeing the giant southern fields replete with proven
reserves.
The region’s oil exploration has been ahead of
Iraq's since 2003, but due to political disagreement
and infrastructure limitation, the progress has been
limited. Some of the new oil discoveries have come
on tap and the region currently produces over
200,000 barrels of oil per day and there is
potential for growth.
ALL (VIABLE) ROADS LEAD TO
TURKEY
The Kurdistan region is landlocked and the only
viable route to sell the vast energy reserves,
thought to amount to 40 million barrels of oil and
as much as 200 million cubic feet of natural gas, is
via a number of pipelines to the Mediterranean port
of Ceyhan in Turkey. Turkey is an energy‐transit
nation that connects Caspian and Central Asian
suppliers with European consumers.
Plans for building more capacity and connecting it
to planned Southern Corridor projects such as the EU‐back
natural gas pipeline Nabucco have also been drawn.
Turkey has the ambition to become the world’s 10th
largest economy within a decade and sees itself as
the emerging leader of the Muslim world.
With a GDP growth of 11 per cent in the first
quarter of this year, virtually outpacing China,
Turkey relies heavily on energy imports to fuel its
booming economy.
But its overdependence on imports and recent spiking
oil prices have brought its current account deficit
to record levels, creating inflation and
unemployment.
Currently, Russia and Iran meet most of the Turkish
hydrocarbon needs, but the Kurdistan region is
quickly joining the fold.
It is generally acknowledged that the Kurdistan
region has a huge potential for further Hydrocarbon
discoveries and the US Geological Survey has
estimated reserves at approximately 40 billion
barrels of oil as these figures are constantly
revised.
Altogether, the Kurdistan region and Iraq have the
potential to fuel the Turkish economic growth as
well as supply the European market, enabling it to
diversify supply sources, thus breaking the Russian
natural gas monopoly.
EMERGING RIVALRIES
However, ongoing tensions between Turkey and its own
Kurdish population estimated at 20 million people
are an important stumbling block in Ankara’s
relationship with the Kurdistan region across the
border.
Until recently Turkey refused to recognise the
Kurdish region officially. Nevertheless, the tense
relation has been thawing and strong economic ties
have been forming in recent years.
Turkey is by far the region’s largest investor and
the potential economic and strategic benefit for
Turkey's engagement with Kurdistan is enormous.
Nonetheless frictions along political lines continue
to test the budding cordial ties as bases belonging
to the Kurdish Workers’ Party (PKK) were targeted in
southern Turkey and seven Kurdish civilians were
killed, as reported by the international press
recently.
The relationship is fragile and has not been on
equal terms as many often describe it as biased in
favour of Turkey. However, progress has been made
and the Turkish government understands the need to
solve the Kurdish question.
Iran is the other main player in the region, having
similar ambitions to Turkey's as it sees itself as
an emerging regional “super power”.
Iran competes with Turkey for regional influence,
but conducts politics more belligerently and has not
made many friends around the world.
Iraq, on the other hand, is crippled by political
infighting and progress is painstakingly slow. The
Shi'i government in Baghdad has been ever closer to
Tehran, which has made Kurds and Turkey sceptical
about their intentions.
The growing links between the two former enemies
were best illustrated at the end of July when Iran,
Iraq and Syria signed a Memorandum of Understanding
to build a pipeline that could carry up to 110
million cubic metres per day of Iranian natural gas
through Iraq to Syria.
This move by Iran is largely to defy existing
international sanctions and extend its political
influence throughout the region
EUROPEAN ENGAGEMENT AND
ENERGY SECURITY
Germany, one of Europe’s largest energy consumers,
announced earlier this year that it plans to abandon
nuclear power by 2022. This sudden shift will have a
profound effect on the European energy market and
will undoubtedly bring the EU’s energy supply and
security into focus.
Although the political rhetoric is geared more
towards renewable energy, most experts agree that
the solution is not viable, at least in the short
term, given the unreliable nature of this type of
generation.
Shale gas is one option to be explored as the
technology has been very successful in the US, but
it is unlikely to take off in Europe any time soon,
as policymakers and the industry are yet to put
their weight behind it.
Under these circumstances, Germany relies on 40 per
cent of its gas supplies on Russia, a figure that is
likely to rise when the country will have phased out
its nuclear generation.
Faced with fewer options, Germany as well as other
European countries will have to consider the
potential of gas supplies from the Middle East and
Central Asia via the Southern Corridor. Such a
possibility could help Europe to meet its energy
needs in the medium to long term as well as wean
itself off Russia.
In May, the EU’s Energy Commissioner, Günther
Oettinger and Iraqi Deputy Prime Minister for Energy
Affairs, Hussein Shahristani, signed a declaration
on an enhanced strategic energy partnership, which
paves the way for oil and gas delivery to Europe via
the Southern Corridor.
The EU acknowledged Iraq’s central government's
authority on all exports of oil and gas from the
country. This means that the Kurdistan Region has to
go through the Iraqi government for any exports to
the EU.
The move angered Kurdish officials, who feel further
hampered in their efforts to sell energy to European
markets.
The EU's engagement with Baghdad on such a sensitive
matter without including KRG sends a wrong signal to
the Kurdistan region, isolating it even further. The
Kurdistan region sees itself as friend of the West,
with real ambitions to implement democratic values.
However, the ongoing rivalries between its
neighbours Turkey and Iran as well as a lack of
engagement from Europe and the ongoing political
uncertainties in Iraq itself are casting further
doubts over any form of progress. There are many
elements in the game: Turkey’s ambition to join the
European Union, Kurdistan’s aspiration towards
statehood, Europe’s need for energy security.
While the EU’s energy consumption is increasing and
Russian monopoly on European gas markets is growing,
embracing the resource‐rich Kurdistan region which
strives to emerge from isolation could the most
obvious solution for Europe in the long term.
This Article first appeared on EUCERS NEWSLETTER
www.eucers.eu
Shwan Zulal is a political risk analyst,
specialising in Kurdish PSCs and Hydrocarbon Law and
advising investors in the Kurdistan Region and Iraq
with legal background. He also runs a blog on to the
same subject http://kurdishviews.blogspot.com/
Shwan Zulal is a
political risk analyst, specialising in Kurdish PSCs
and Hydrocarbon Law and advising investors in the
Kurdistan Region and Iraq with legal background.
Zulal is a regular contributing writer for ekurd.net.
He also runs a blog on to the same subject
http://kurdishviews.blogspot.com
Copyright © 2011 ekurd.net
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