By the Blouin News Business staff

Iraqi Kurdistan oils the path towards independence

by in Middle East.

Chairman of Dubai's Emaar Properties Mohamed Alabbar (C) and Prime Minister of the Kurdistan Regional Government, Nechirvan Barzani (2ndL) look at the architecural model of the "Downtown Erbil" project during its presentation on October 27, 2013 in Arbil. Photo: AFP/Getty Images

Chairman of Dubai’s Emaar Properties Mohamed Alabbar (C) and Prime Minister of the KRG, Nechirvan Barzani (2ndL) in Arbil, the capital of the semi-autonomous region. Photo: AFP/Getty Images

The semi-autonomous Kurdistan region in the north of Iraq is taking big — and symbolic — steps towards its twin goals of achieving independence from Baghdad and becoming a big energy player. The regional government announced plans to build a second oil-export pipeline, which has the potential to make Kurdistan self-sufficient. The first pipeline is expected to be operational within the next six months, perhaps as soon as by the end of this year. These pipelines will mean expanded oil sales across the region and beyond. The earnings, coming in the opposite direction, will ultimately provide the leverage the Kurdistan Regional Government (KRG) believes it needs to gain independence.

Today the KRG receives a 17% share of Baghdad’s federal budget, though the central government threatens to cut that funding if the Kurds proceed with their new pipelines. In return, Baghdad is meant to get sole ownership of the country’s oil earnings, and a share of the revenue it gets from selling the oil Iraqi Kurdistan produces. The KRG reckons that the region would be better off selling directly than it actually is by profit sharing with a central government with which it prefers to have no part. But at this point, that is still guesswork. The KRG hopes that the first pipeline will ship 150,000 barrels per day (bpd), rising towards a target of 1 million bpd by 2015 and 2 million bpd by 2019. The ultimate goal is to produce 3 million bpd of oil for export.

At current prices that would be more than $120 billion a year in revenue — sufficient for international oil giants to look the other way when it comes to the political dispute. Norway’s DNO, the Anglo-Turkish group Genel Energy, and privately owned KAR Group, based in the Kurdish capital Arbil, already operate three fields in the region. ExxonMobil, Chevron and Total have signed exploration deals with the regional government, even though they are potentially at risk of losing deals in the south.

Turkey, the big regional player, is trying to stay friends with both the Kurds and Iraq’s central government. But the first of the two oil pipelines terminates in Turkey after running for 281 kilometers (174 miles) through Kurdish territory from the Taq Taq oilfield. Once commercial shipments start, it will only be a matter of time before the political stalemate between KRG and Baghdad is brought to a head. Turkey will then be faced with some hard choices — not least because there is a sizable Kurdish minority living within its modern borders.

(Watch a video on the Kurdish issue from the 2013 Blouin Creative Leadership Summit:          United Kurdistan may be looking likelier).

Earlier in the week, Emaar Properties, Dubai’s largest property firm, launched a $3 billion development project in Arbil, the capital of Iraqi Kurdistan, which gives a sense of the growing self-confidence that its vast oil reserves are instilling in the semi-autonomous region. Yet despite the upbeat mood, the news hasn’t all been good. Earlier in the  month, the largest oil and gas investor in the region, Dana Gas, which leads a consortium of international investors, filed the first big legal case against KRG over $1 billion in owed payments and production rights.

Meanwhile Baghdad is aware that a Kurdish region that gains sole control of its oil resources, and one that achieves independence, could ultimately lead to the break-up of Iraq. The country’s northwestern province of Nineveh, which abuts Iraqi Kurdistan and sits atop significant oil and gas reserves as well, has started talks with oil companies and is drafting terms to attract their investment.