Oil unites Kurdistan and Turkey
Once at loggerheads, now best friends
A natural gas pipeline is being built that will transport at least 10 billion cubic meters of gas annually to Turkey in return for refined oil products to Kurdistan.
In a major move to bring Kurdistan and Turkey closer, a natural gas pipeline is being built, which will transport at least 10 billion cubic meters of gas annually. This is approximately over fifth of Turkey’s current consumption. Turkish officials have refused to publicly confirm the project that threatens to aggravate a dispute between Baghdad and the autonomous Kurdistan region over energy resources.
US officials are concerned that Turkey’s strained ties with Baghdad could have implications for the rest of the region. Turkey is defying Washington and Baghdad in developing a broad energy partnership with Iraqi Kurds as it pushes to secure affordable oil and gas supplies to fuel its rapid economic growth.
Turkey is pushing ahead with plans to extend economic cooperation with Iraq’s Kurdistan region, brushing aside warnings from the United States that this approach could lead to the disintegration of the Iraqi state.
Iraq’s Kurdish region has become so important to Turkey, economically and politically, that Ankara is willing to risk tensions with the US, its most important ally, said Celalettin Yavuz, an analyst at a think tank in the Turkish capital.
Taner Yildiz, Turkey’s energy minister announced to the Turkish media that oil imports from northern Iraq to Turkey by truck had resumed after a pause of several weeks for technical reasons. He said Turkey was determined to sell refined-oil products to Iraqi Kurdistan, the state-run Amnadolu news agency reported. Oil exports from northern Iraq to Turkey have angered the central-Iraqi government. It said the trade was illegal, which Ankara denies.
Yildiz stressed that Turkey was also buying oil from southern Iraq because doing otherwise would be “discrimination”.
The Kurdish Regional Government (KRG) announced last week its plans to press ahead with building an oil-export pipeline to Turkey. “We want to have an oil pipeline to ourselves,” said Ashti Hawrami, the Iraqi Kurdish minister for natural resources..
Crude from the Kurdistan region used to be shipped to world markets through a Baghdad-controlled pipeline to Turkey, but exports via that channel dried up in December, from a peak of around 200,000 barrels per day (bpd), due to a row with Baghdad over payments.
Recep Tayyip Erdogan, the Turkish prime minister, said his country was not obliged to wait for a new agreement between the central Iraqi government and the KRG over oil exploration and export rights, even though Washington wanted Ankara to be cautious.
“Our economic relations are getting broader, despite everything, including America,” Erdogan said last week, referring to the KRG. Erdogan, who has been careful to develop close relations with the US, freely acknowledged tensions with Washington over the issue.
Analysts say the move could also establish the country as a regional energy hub, but risks aggravating tensions in the powder keg region and damaging ties with the United States, its major ally.
Ankara had initially refused to engage in official contacts with Iraqi Kurds, fearing that the establishment of an independent Kurdish state there could em- bolden its own Kurds, some of whom have waged a nearly threedecade insurgency.
But as Turkey’s economy has boomed — it grew by more than 8.0 percent in 2010 and 2011 — and its thirst for energy has grown, Prime Minister Recep Tayyip Erdogan has moved gradually to forge trade ties with Iraqi Kurds.
The burgeoning energy ties are raising eyebrows in Washington, where there are concerns that they could tip the volatile country towards disintegration and push an increasingly isolated Baghdad into Iran’s embrace. “Economic success can help pull Iraq together,” US Ambassador to Turkey Francis Ricciardone said earlier this month.
But “if Turkey and Iraq fail to optimize their economic relations ... there could be more violent conflict in Iraq and the forces of disintegration within Iraq could be emboldened,” he warned. “... and that would not be good for Turkey, the United States, or anybody in the region.”
Turkey has already ruffled Washington’s feathers by continuing to import Iranian (oil and gas) despite US efforts to isolate Tehran over its alleged nuclear weapons drive. But Ankara has remained defiant, supporting Iraqi Kurdistan’s right to use part of its energy resources as it sees fit.
Erdogan said the regional Kurdish government “is free to use this right with whichever country it wants and we are their neighbor.”
Analysts say energy-hungry Turkey’s dependence on expen- sive energy imports from Iran and Russia are pushing it to find cheaper sources, and Kurdistan appears to be the best provider.
“Iraqi sources are the cheapest and it is a way for Turkey to diminish its energy dependence,” Mete Goknel, former director of Turkey’s state-owned pipeline company Botas, said to the Arab news online news service.
According to the US Energy Information Administration, Turkey has been importing about half of its crude oil from Iran, although this is likely to fall given international sanctions on Tehran.
In 2011 Turkey was importing nearly 60 percent of its natural gas from Iran, with a fifth coming from Russia. “Turkey depends on Russia and Iran on energy and if both countries close the tap, the Turkish economy will tank,” said an energy expert who asked to remain anonymous.
This imported energy has been responsible for a large part of Turkey’s trade deficit, which threatens to crimp expansion. Goknel said Iraq would also benefit from Turkey becoming a regional energy hub. “It would be more advantageous for Iraq to ship its gas to western markets through Turkey versus the more expensive shipping lane, the strait of Hormuz,” he said. A decision is expected within months on the route of a separate pipeline to ship natural gas from Azerbaijan via Turkey to Western Europe. However, Baghdad appears intent on dashing Ankara’s designs to become a regional energy hub, blocking Turkish efforts to step up their presence in Iraqi Kurdistan.
In November, Baghdad blocked Turkish national energy firm TPAO from bidding for an oil exploration contract, a decision which Erdogan said was not “smart business. Later on in December, Baghdad barred a plane carrying Turkish Energy Minister Taner Yildiz from landing in Erbil as he was reportedly on his way to seal the much-speculated energy deal.
A Baghdad-controlled oil pipeline that goes to Turkey operates well below its capacity to transport 70.9 million tons per year.
Sunni-majority Turkey is also at loggerheads with the Iraqi government of Shiite Prime Minister Nuri Al-Maliki over a number of issues including Ankara’s refusal to extradite fugitive Vice President Tareq Al-Hashemi.
Despite the difficulties, Turkish trade with Iraq has grown rapidly, from $ 2.8 billion in 2007 to $ 10.7 billion last year.
Iraq is now Turkey’s number two trade partner following Germany, with most of its trade being from the Kurdish region. More than 1,000 Turkish companies are currently operating in northern Iraq, and they are optimistic Iraq could become Turkey’s top trade partner as soon as this year.
More significantly peace with the Kurdish rebels in Northern Kurdistan would likely further increase the attractiveness of Iraqi Kurdish energy resources for Turkey, say analysts.
Attendants and exhibitors discuss business during the Second Kurdistan Iraq Oil & Gas Conference in Erbil, December 3, 2012.