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 April 2012 sees another record month for Iraq’s oil exports, what does it mean for the Kurds?

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April 2012 sees another record month for Iraq’s oil exports, what does it mean for the Kurds?  11.5.2012 
By Joel Wing Ekurd.net 

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Photo: AFP
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May 11, 2012

April 2012 saw another large increase in Iraq’s oil exports and profits. That was due to two new oil terminals in the southern province of Basra opening in the last two months. Iraq has some of the largest petroleum reserves in the world. Its problem has been the lack of investment and inadequate and aging infrastructure, which was caused by thirteen years of sanctions. Nine years after the 2003 invasion of the country, it is finally starting to address those two problems. At the same time, the central government is dealing with an internal dispute about exports between it and the Kurdistan Regional Government (KRG). The Kurds stopped their exports in April, because it claimed that Baghdad had not paid the companies operating there for months. The KRG is unlikely to win this dispute, because with oil production taking off in southern Iraq, the central government does not need the Kurds’ contribution as much anymore.

In April 2012, Iraq witnessed another large jump in its oil output. For the month, the country averaged 2.508 million barrels a day in exports. That was up from 2.317 million barrels in March. In total, the country exported 75.25 million barrels last month, compared to 71.827 million in March. The State Oil Marketing Organization said that April’s numbers were the highest in decades. As usual, Basra, Iraq’s main link with foreign markets, exported an average of 2.12 million barrels a day, a large increase from the 1.92 million seen in March, 1.711 million in February, and 1.712 in January. In comparison, the northern pipeline to Turkey averaged 387,000 barrels a day in April, 400,600 in March, 375,000 in February, and 393,500 in January. Both routes continually see fluctuations in their output due to bad weather, technical problems, and attacks upon the northern pipeline. The Kurds have also been contributing to this output, but halted all exports in April. That didn’t have a dramatic change upon the northern pipeline’s load. In the south, output has dramatically gone up because of two new terminals opening up in Basra. The first started operating in March, and the second in April. The terminals will eventually have a capacity of 850,000 barrels a day. In total, the Oil Ministry plans on building four floating mooring points in Basra, which will double the possible flow through Basra.


 
Iraq Oil Exports And Profits 2011-2012
Month
Avg.
Exports
(Mil/
Bar/
Day)
Avg. Price Per Barrel
Revenue (Mil)
Jan. 11
2.16
$90.78
$6.082
Feb.
2.20
$98.44
$6+
Mar.
2.15
$107.13
$7.167
Apr.
2.14
$114.26
$7.342
May
2.22
$108
$7.45
Jun.
2.27
$105.16
$7.173
Jul.
2.16
$108.80
$7.3
Aug.
2.19
$104.92
$7.124
Sep.
2.10
$104.89
$6.619
Oct.
2.08
$104.43
$6.742
Nov.
2.13
$106.59
$6.833
Dec.
2.14
$106.18
$7.061
2011
2.16
$104.96
$6.907
Jan. 12
2.10
$109.08
$7.123
Feb.
2.01
$112.92
$6.595
Mar.
2.31
$118
$8.475
Apr.
2.50
N/A
$8.8

Oil Exports Through Basra 2012
January 1.712 mil/bar/day
February 1.711 mil/bar/day
March 1.92 mil/bar/day
April 2.12 mil/bar/day

Oil Exports Through Kirkuk 2012
January 393,500 bar/day
February 375,000 bar/day
March 400,600 bar/day
April 387,000 bar/day

The country’s new infrastructure is coming on-line just in time. In 2009, the Oil Ministry held two rounds of auctions for petroleum fields, which brought foreign companies back into Iraq. Their work is finally beginning to pay off with a huge increase in production from the blocks that they are developing. Rumaila field for instance, the largest in Iraq, which is run by British Petroleum was producing 1.3 million barrels a day in April, and expects to increase that by 250,000 barrels by the second half of the year. Exxon has brought production at West Qurna 1 to 406,000 barrels a day, and wants to see that grow by 100,000 barrels by the end of 2012. Italy’s Eni expects a similar increase at the Zubayr field that is currently at 254,000 barrels a day. Until the new terminals opened, the energy companies often had to cut production, because Iraq lacked the pipelines to ship it out and the storage facilities to hold it. The new terminals will finally begin to address part of this bottleneck issue.

April’s exports earned the country $8.8 billion, another record high in recent years. In March it brought in $8.47 billion, which until then was the most the country had earned since 1989. For all of 2011, Iraq averaged $6.9 billion per month. While the exact amount the country earned per barrel was not released, prices have remained over $100 per barrel for Iraqi crude since March 2011, because of tensions in the Middle East such as sanctions on Iran, and the civil conflict in Syria. Iraq relies upon oil for 90% of its revenue, and is the most oil dependent country in the Middle East and North Africa.

The large amount of exports and profits poses a dilemma for the Kurdistan Regional Government (KRG). At the beginning of April, it announced that it was halting all of its exports, because Baghdad was not paying the companies operating there. It claimed the central government owed $1.5 billion, and that no payments had been made for almost a year. The corporations working in Kurdistan have had to lower production there as a result. This is the second time the Kurds have halted their exports over disputes over money. Kurdish officials came to an agreement with Prime Minister Nouri al-Maliki in November 2010 to begin foreign sales again as part of a political deal to support his second term in office. The Kurds were to begin exporting at 100,000 barrels a day that year,
www.ekurd.net and raise it to 175,000 barrels by 2012. With exports taking off in the south however, there is not as much pressure on Baghdad to give into the KRG’s demands. Originally, the Oil Ministry allowed the Kurds to export, because it needed the money. That situation no longer exists. The KRG has therefore lost its leverage in this dispute, and will likely have to come to some sort of compromise on Maliki’s terms. That will leave Kurdistan with its smuggling operations to Turkey and Iran to make money to pay energy businesses working there. This argument severely hampers the Kurds’ plans to expand its petroleum industry, and draw in more foreign investors, and favors Baghdad, which has always opposed Kurdistan’s independent policy.

Iraq’s production and earnings can expect to see continued growth for the next several months. Companies are increasing their output in southern Iraq, and more new terminals are due to open. That will provide increased revenue for the central government, which in turn, will give it greater leverage vis-à-vis the Kurds. The Iraqi government is notoriously slow and inefficient. It has been late in paying some of the companies working in Basra. The payment issue with Kurdistan may just have been bureaucratic hold-ups. Even if Baghdad was doing it on purpose, the KRG does not hold many cards to fight back right now. The central government controls the purse and the export pipelines, and now does not have as much of a pressing need to allow Kurdistan to sell its oil abroad as it did before its own output had jumped. That puts the KRG in a bind. That doesn’t mean that some sort of deal won’t be worked out in the future, but it will be on Baghdad’s terms.

SOURCES

Agence France Presse, “Iraq April oil exports highest since 1989,” 5/1/12
Ajrash, Kadhim and Razzouk, Nayla, “Iraq March Crude Exports Rise to Highest Since 1980,” Bloomberg, 4/1/12
Ajra
- “Iraq’s April Crude Oil Exports Rose to Highest in ‘Decades,’” Bloomberg, 5/1/12
Aswat al-Iraq, “Iraqi oil exports increased in January 2012,” 2/20/12
International Crisis Group, “Iraq And The Kurds: The High-Stakes Hydrocarbons Gambit,” 4/19/12
Lawler, Alex and Mackey, Peg, “UPDATE 2-Iraq seen sustaining southern oil exports surge,” Reuters, 4/16/12
Mohammed, Aref, “Iraq south oilfields to pump 2.75 mbpd by end 2012,” Reuters, 4/20/12
Rahman, Muhammad Abdul, “Iraq’s March oil sales highest since 1989,” AK News, 4/22/12
Rasheed, Ahmed, “Iraq approves Hormuz oil exports contingency plan,” Reuters, 3/18/12
Reuters, “First tanker leaves new Iraq export terminal,” 3/13/12
- “UPDATE 1-Iraq exports first oil cargo from second offshore terminal,” 4/24/12
UPI, “DNO says production hurt in Iraq,” 4/13/12

Joel Wing, with an MA in International Relations, Joel Wing has been researching and writing about Iraq since 2002. His acclaimed blog, Musings on Iraq, is currently listed by the New York Times and the World Politics Review. In addition, Mr. Wing’s work has been cited by the Center for Strategic and International Studies, the Guardian and the Washington Independent. You may visit his Blog Musings On Iraq at musingsoniraq.blogspot.com

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