28.05.2014 Author: Stanislav Ivanov

Iraq Oil Provokes New Conflicts

0220According to OPEC daily oil production rates in Iraq increased by 400 thousand barrels and reached 3.4 million barrels per day in February — the decade’s highest. Out of them 2.8 million barrels are exported. When a country is able to maintain its average annual exports at 2.9 million barrels per day, its income will amount to 100 billion dollars a year ( in 2013 Baghdad made around 89 billion dollars by keeping average export levels at 2.4 million barrels per day). Iraqi authorities are planning to reach a level of 4.5 million barrels per day by the end of 2014, and to consequently hit 9 million barrels per day by 2020. According to the annual report of the International Energy Agency (IEA) Iraq may become one of the three world’s top exporters of hydrocarbons by 2030.

When Iraq reached its prewar levels of oil production the expected improvements in the living conditions of the majority of Iraqi population has not followed. Tens of billions of dollars are spent on the militarization of the country that has been pulled in another arms race (heavy military equipment and weapons shipped from the US alone amount to 20 billion dollars), a large-scale corruption corrodes the state apparatus, the terrorist threats are rising along with the armed resistance to the authorities. Iraqis are facing water shortage, destroyed electricity infrastructure, the decline of healthcare and education systems on the daily basis. A paradox when the citizens of one of the richest countries in the world live in bitter poverty while under the stress of constant fear for one’s life has yet to be explained. Discrimination of the Sunni minority by central authorities, ongoing interventions of the foreign powers that are trying that to play on the country’s ethnic and religious conflicts, is nothing but a straight road to the new civil war . The possibility of disintegration of Iraq into several states ( Shiite in the south, Sunni in the central areas and the west , Kurds in the north) is as high as ever.

Foreign players have made a major commitment to the destabilization of Iraq, the most active of them are Riyadh and Doha. They perceive Iraqi as a growing threat to their political and economic interests. Gulf monarchies can’t agree with the rise to power of the Shiite majority in Iraq which may result in the strengthening of Iran’s positions. Kings, emirs and sheiks of the Gulf countries are depicting for themselves the future horrors of the Shiite expansion in the region.

Another equally disturbing reason for the infiltration of Iraq is the fear of Saudi Arabia and Qatar of the possible loss of control over hydrocarbon prices. The softening of anti-Iranian sanctions and the gradual increase of export levels of Iraq can lead to a decline in hydrocarbon prices on the world markets and, thereby, significantly undermine the economic capabilities of the Arab monarchies. This will weaken their role in the international arena and in the Islamic world and then one would witness new outbursts of unrest and mass protests in the outwardly prosperous monarchies,  just like in the early days of the “Arab Spring”.

Iraqi Prime Minister Nouri al-Maliki has officially declared on March 9 2014 that Saudi Arabia and Qatar took steps to deliberately destabilize situation in Iraq.”They are attacking Iraq, through Syria and in a direct way, and they announced war on Iraq. These two countries are primarily responsible for the sectarian and terrorist and security crisis of Iraq,” – he said in an interview to the French TV channel “France 24”. According to the Iraqi Prime Minister Riyadh and Doha has been providing political, financial and media support to militants in Iraq, along with supplying those with weapons. This statement has been proven true by numerous detentions of intelligence officers of the two above mentioned states along with arms convoys in the border areas of Iraq. Armed rebellion in the western province of Anbar, growing number of terrorist attacks and mass protests in the so-called “Sunni Triangle” – were largely orchestrated by Saudi Arabia and Qatar.

Another problem of Iraq today is the distribution of income from oil and gas that has been a major bone of contention. A law that had been regulating this sphere was adopted during the Saddam Hussein era, hence it is no longer valid, as for the adoption of a new law it has been largely sabotaged by the government of Nouri al-Maliki. According to reports from Erbil, this Kurdistan Region hasn’t got 17% of hydrocarbons revenues that are attributed to this region by the Iraqi law. To fill the whole in the regional budget and achieve a greater economic independence from Baghdad, Iraqi Kurdistan has adopted its own law on the exploitation of natural resources. The estimated worth of this region’s natural deposits amounts to 45 billion barrels of oil and 2.83 trillion cubic meters of gas. The word is that the Kurdistan Regional Government has already signed over 50 contracts with international corporations that constitute the exploration and extraction of oil and gas. Among them are the world’s famous Exxon-Mobil, Total, Chevron and Gazprom Neft. As of now Gazprom Neft is the only Russian company that has signed agreements with the Kurdish region of Iraq that imply the extraction of at least 670 million barrels of oil. The company is planning to invest around 1 billion dollars in the development of Kurdish oil fields. Gazprom Neft is also working with Iraq’s central government as an operator of foreign consortium, extracting oil in the area of Badra. In late 2013 Kurdistan began exporting oil and gas by pipelines to Turkey on the basis of an agreement signed between Ankara and Erbil in November 2013. Allegedly, 50 % of these hydrocarbons would be consumed by Turkey, and the remaining 50% must be shipped via the Turkish Mediterranean port of Ceyhan to the world market. For now most of the oil is stored in the depots of Ceyhan. The expected rate of the Kurdish oil exports must reach four hundred thousand barrels a day by the end of 2014.

The authorities of the Iraqi Kurdistan have lately been negotiating oil and gas pipeline projects with Iran. The possible outcome is the construction of oil and gas pipelines between Iran and northern Iraq. Those pipelines must be shipping crude oil from the Kurdish region to Iran, where it would be processed and refined at a plant in the city of Kermanshah and then be shipped back as oil products. Natural gas projects could result in the shipping of Iranian gas to the Kurdish cities of Sulaymaniyah and Erbi. At the same time the Kurdish authorities have begun searching for investors and contractors for the creation of their own refining and petrochemical industries. It is possible that these area will be of some interest to Russian companies, especially for Tatneft.

Naturally, Baghdad is rather irritated by the Kurdish initiatives in the petroleum sector which resulted in its attempts to stress that only the central government of Iraq has the exclusive right to dispose of the national hydrocarbon resources. Iraqi authorities demanded that Erbil should be informing them in advance about the volumes of produced and exported hydrocarbons, while the prices on these should correspond with international levels . In addition, according to Baghdad, all deliveries must be made through the state company SOMO (State Organization for Marketing of Oil), and revenues from all the sale of oil and gas should be deposited on the accounts of the Development Fund for Iraq (DFI) in the United States. Kurdish leaders allow SOMO to participate in Erbil’s international deals on oil and gas, but only as an observer. It should be noted that in order to reduce tensions with the government of Nouri al-Maliki, the Turkish authorities proposed their Iraqi partners to create a three-sided committee (Ankara, Baghdad, Erbil ) on the shipments of Iraqi oil to Turkey .

One should note that the increase in production of hydrocarbons in Iraq hasn’t radically improved the lives of its people, it hasn’t brought much peace to the battered Iraqi soil as well. Moreover, the struggle for the distribution of income from oil and gas exports leads to a rising tension between the main ethnic and religious communities of the country and can potentially lead to the the disintegration of the country. The Gulf monarchies would agree with strong Iraq that occupies the leading positions on the hydrocarbons market, so they would continue their subversive activities in the so-called “Sunni Triangle”. They’re attempting to turn Iraq, like Syria, in an arena of combat between the radical Islamist groups and an undesirable regime and the Shiite Islam in general. One of such groups that would be taking aggressive steps is the Islamic State of Iraq and the Levant.

Stanislav Ivanov, senior research fellow at the Institute of Oriental Studies of the Russian Academy of Sciences, Candidate of Historical Sciences; exclusively for the online magazine “New Eastern Outlook”.