What is oil going to do for Kurdistan in the future?
With the gradual shift away from dependency on the Iraqi central government, towards generating its own income from direct oil sales, Kurdistan is going to be one of the rising stars in the global oil market.
So far a major source of national income has been the supposed 17% of the national Iraqi budget that Kurdistan has been getting. The Iraqi central government had been paying this with severe delays and cuts. As disagreements with the The Kurdistan Regional Government (K.R.G) mounted the central Iraqi government stopped the budgetary payments that Kurdistan was getting before several months ago, hoping to bring it to its knees. However as the saying goes, “necessity is the mother of invention,” the seeming monetary cul-desac brought about a new road for the region.
The K.R.G has taken a leap of faith and started selling its own crude oil directly and publicly, thereby bypassing the central Iraqi government. There continues to be many obstacles that the central government is putting in the way of selling this crude oil which is exported with the active support of Turkey. The central government has even tried to sue Turkey for $250 million U.S dollars compensation. However, so far it seems the hurdles that Noori Al-Maliki the Iraqi prime minister has been putting hasn’t stemmed the tide of foreign companies clamouring for lowpriced light crude oil coming from Kurdistan.
What are the implications of this leap of faith? For starters greater economic independence is definitely one of the advantages that the Kurdistan Region will have. This guarantees stability of income and financing, whereas before many projects and plans were halted due to the irregularity of the central budgetary payments, now the flow of money will be smooth and dependable, not mentioning the greater future national revenue.
It also seems that the Kurdish oil revenue will be greater than before especially as the central government has always cut the assigned 17% Kurdish share of the Iraqi budget to a lower percentage. Kurdistan’s budget of 2013 was around 17,000,000,000,000 (seventeen trillion Iraqi dinars) which is around $15,000,000,000 (fifteen billion dollars for the year 2013). Now if we take the Kurdistan Ministry of Natural Resources estimates that oil production rate is going to reach around a million barrels per day by the end of 2015. Then at the standard price of $100 per barrel; it will give Kurdistan a whopping annual budget of $36,500,000,000 (thirty six billion and five hundred million dollars). It’s more than twice than what Kurdistan has been getting from the central government and without all the hassle!
Another economic implication is the long term effect of the Kurdistan region becoming a major player in the global oil market that has far reaching effects on foreign investment. Kurdistan is already a hub for foreign investors who are seeking to enter the oil market. Usually the first risk takers who are willing to take the plunge and enter the Kurdish oil market are the biggest winners. D.N.O the Norwegian oil company was one of the first to come to Kurdistan and its profits and oil production share speaks for itself. Similarly the direct selling of Kurdish light crude oil is benefiting Turkey and Turkish companies who are taking the risk despite the constipation of the central government. Also local Kurdish oil companies like Kar Group led by its CEO Baz Karim, are quickly acquiring the necessary knowledge and skills to become lead players in the oil sector. This is generating higher national revenues as the local companies are investing within Kurdistan and using Kurdish manpower thereby alleviating the chronic large public sector employment problem as more and more local manpower moves towards the private sector and cease being a burden on the government budget.
Where is all this leading to? The signs are there for everyone to see; sooner or later Kurdistan is going to become an independent state and the economic consequences are going to be huge. It will probably cause a big change in the international oil market with the entry of a new nation that is on the Top 10 List of the world’s largest oil reserves!