A major battle is on. Iraq's northern, energy rich Kurdistan region is under spotlight. The Kurdistan Regional Government (KRG) is endeavoring to carve a niche for itself on the global energy map - independent of the central government in Baghdad.

Proven reserves in Iraqi Kurdistan of 45 billion barrels amount to more than a third of the Iraqi total of 143 billion recorded in BP’s annual statistical review. Output from this beautiful, mountainous region, bordering Turkey, Syria and Iran is an on-off trickle for now in global terms. Compared to the 2.4 million barrels a day that Iraq produces today, mere 300,000 barrels of production per day from the semi-autonomous region of Kurdistan seems very small. Yet the crude here is not only plentiful but easy to get at, rare among undeveloped energy resources.

In some places it seeps out of the hillside and collects in the valley below. Given the right investment and an export route, output from the region could reach 1 million barrels per day by 2014, and 2 million five years later, says Ashti Hawrami, the KRG natural resources minister. That would be more than Libya.

The centrifugal dimensions of Iraqi politics in combination with the regional geopolitics, is making the issue a volatile mix. Baghdad rejects all contracts signed by the KRG, independent of the central government. But in the absence of a long-awaited hydrocarbon law, which may put an end to revenue-sharing problems between Baghdad and Arbil, the KRG seems intent on moving ahead. Closer ties with Western companies and the possibility of exporting oil to further markets via Turkey are encouraging the KRG to operate even more independently of the central government.

In 2002 Turkish company Genel Enerji blazed an exploration trail to the region. Norwegian company DNO and others followed after the US-led invasion of Iraq in 2003. As the history goes, in 2007 KRG came within a whisker of making Royal Dutch Shell his first really big signing, but the board of the world industry number two chickened out at the last moment, reports insist, ruling it too risky.

Because of the politics and indeed the payback issue, ventures into KRG territory remained the preserve of smaller explorers with an appetite for political risk and nothing to lose in Baghdad. But that changed last November, some four years after Shell walked away.

Exxon Mobil, the world’s biggest private oil company, signed a deal for six exploration blocks. And this opened the floodgate. Now Chevron too has moved in, buying 80 percent of two blocks, Sarta and Rovi. And then, Total of France piled in, buying 35 percent of the Harir and Safen blocks from Marathon Oil, along with Gazprom of Russia, which farmed in to the Garmian block operated by Canadian company Western Zagros.

With four of the world’s top 10 international oil companies by market value having set up shop in Arbil, the northern Iraqi region is also attracting relatively small players, with around 40 foreign companies now drilling in the territory. Baghdad is simply furious, and has made it clear that Exxon, Total and others are risking their involvement in multi-billion dollar projects in the south of the country.

With the US companies, most active in northern Iraq’s oilfields, Iraqi Prime Minister Nuri Al-Maliki has also written to US President Barack Obama predicting dire consequences for the country’s stability. It has also threatened to throw out Exxon and Total and blacklist Chevron from future involvement. All to no avail - so far. The move north by the oil majors on the other hand is well calculated.

"We understand the political risk of going into the north and the commercial terms are attractive enough to take that risk," said an oil industry source. KRG production sharing contracts promise as much as 25-35 percent versus the 15 to 18 percent in the south for fixed-fee output-boosting and start-up deals on untested fields, oil experts say. Total’s CEO Christophe de Margerie has been openly critical of Baghdad’s service contract terms.

The latest national tender for exploration blocks drew no interest from the oil majors. Norway’s Statoil and Italy’s Eni are both looking at KRG acreage, reports say. Statoil has just pulled out of the giant West Qurna-2 oilfield in southern Iraq earlier this year, however, Eni is still leading a project to develop the huge Zubair oilfield in southern Iraq. BP and Shell appear an exception here.

They have their hands full in southern Iraq and don’t want to risk that - at this stage. Those already on the ground in Kurdistan are likely to build up their positions. Exxon, risking operatorship of West-Qurna-1 with its dalliance in the north, is looking at unawarded blocks along the border with Turkey, and Chevron and Total are expected to snap up more acreage, industry sources said.

The friction and mistrust between Baghdad and Arbil is growing. Crude exports were halted in April due to a $ 1.5 billion payment dispute between Iraq’s central government and the KRG.

In the latest twist, Arbil has responded to Baghdad’s sabre rattling with an apparent softening of its position, agreeing to resume exports of 100,000 bpd until August 31 provided it gets the money it says it is owed. Crude produced in Kurdistan is fed into Iraq’s Kirkuk export stream and sold onto world markets via the Turkish Mediterranean port of Ceyhan.


The Kurdish stoppage had cut Kirkuk shipments by a quarter to below 300,000 bpd. The tension between Baghdad and Arbil is rising as Energy-hungry Europe is looking for ways to cut its dependence on Russian oil with more fuel from the Middle East, and Turkey stands at a crucial point, which could allow Arbil to export its fuel directly to the West without the intervention of Baghdad.

In May, the KRG announced plans to build a pipeline from the Taq Taq oilfield to hook up with an existing one that runs from Kirkuk in Iraq to Ceyhan on Turkey’s Mediterranean coast, targeting August 2013 as the completion date and initial capacity of 1 million barrels a day.


With Turkey, Iran, global oil majors and Western powers joining the fray, stage is set for another major tussle in the region - with the energy riches of northern Iraq - the apple of discord. Indeed oil and politics make a volatile mix. They also don’t stay away - for long.