What is oil go­ing to do for Kur­dis­tan in the fu­ture?

The Kurdish Globe - - NEWS - By Swara Kadir

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!

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