Hydrocarbons support the global diplomacy of the Kurdistan Region / Углеводороды поддерживают глобальную дипломатию Курдистана Hydrocarbon legs back the Kurdistan Region’s global diplomacy

Hussein Dalsooz Jalal кандидат политических наук аспирант, кафедра зарубежное регионоведение, Нижегородский государственный университет им. Н. И. Лобачевского 603005, Россия, Нижегородская область, г. Nizhny Novgorod, ул. Ульянова, 37 Hussein Dalsooz Jalal PhD in Politics Postgraduate at the Department of Foreign Area Studies of Nizhny Novgorod University  603005, Russia, Nizhegorodskaya oblast', g. Nizhny Novgorod, ul. Ul'yanova, 37 dalsoozjalal@gmail.com Другие публикации этого автора

Introduction

Since 2003, economic ambitions and the supply of its products (in particular, Oil & Gas) to international market have become another foreign relations strategy for the Kurdistan Region Government (KRG). The Kurdistan Region is a home to approximately 50% of Iraq's undiscovered oil reserves. According to the KRG Ministry of Natural Resources, the territory of Kurdistan Region is rich in 45 billion barrels of oil and 100-200 trillion cubic (TCF) of natural gas reserves. This equals to the total oil reserves projected for Nigeria and Libya. Over the past two decades, the oil and gas industry has become a priority and played a key role in the KRG global policy^[1]. From 2005 to 2015 almost ‘200 wells have been drilled encountering recoverable reserves estimated to be in excess of 15 billion barrels of oil equivalent’. In this regard, a part from other tools– terrorism and Anfal ^[2], the KRG has been able to successfully use its hydrocarbons to formulate its foreign policy. Theoretically, this policy is underlined in framework of the KRG’s global ‘soft power’. The KRG understood that the Kurds historically tested the policy of ‘hard power’ –revolutions and resistance movements– but they could not come to a conclusion. And it even reached the reality that the Kurds ‘hard power’ policy always turns into the creation of further regional anti-Kurdish attitudes. Therefore, the strategy implementation of soft power in multilevel system has become the KRG’s prior objects for its global policy. Since recognized, on one hand, its soil is very rich in various resources (in particular oil and gas), and on the other hand, the world demand for hydrocarbons is growing steadily. Here, in this article, we follow to explain how the KRG uses its energy as an excellent tool for entering the global market. We will further delve into the analysis of the hydrocarbon strategy underlying the “soft power” of the KRG to form its foreign relations.

The three main parts will be our discussion target in this article. First, we will give a general overview of Kurdistan’s raw materials and a brief history of oil on Kurdish soil. Second, we will bring hydrocarbon (oil and gas) and the process of marketization under discussion and further give our attention to explain how the energy strategy substantially legs behind the KRG’s global diplomacy. Concluding and the future policy of the KRG for economic diplomacy will be our final part discussion.

A brief history of oil and gas in the land of Iraqi Kurdish

On the lands where Kurds live in Northern Iraq, the discovery of oil and gas fields was first dated to 1901, in the area Chia Shor. The process of searching for oil in other Kurdish areas continued, eventually they were able to find a number of oil and gas fields, such as in Chemhemal in the 1920s, Kor Mor in 1953, Demir Dagh in 1960, and Taq Taq in 1978 (see figure 1). But development in these areas was very slow or even never achieved before the Gulf war ^[3].

Figure 1. field discovery

Source: The Oxford Institute for Energy Studies 2016

Scholars and the Kurdistan government constantly refer to this region as a very rich territory, where Kurds live in Northern Iraq, with various resources, including Oil, Gas, Iron, Chrome, Nickel, Platinum, Gold, Copper, Barite, Zinc and etc. But the persistence of national, political, and security-related reasons has always been serious obstacles to governments (both Iraq and Kurdistan) receiving healthy benefits from these sources. In addition, the lack of a clear geographical border has made the situation even more complicated, and we (researchers) are also confused when we talk about Kurdish areas. But in General, the Kurdish land in Iraq is estimated at 78.736 km2 (including disputed territories). And according to the KRG's Foreign Relations Department, the territory currently under the KRG control is 40,643 square kilometers (see figure 2). So here, in this paper, we focus only on those areas that are currently under the political hegemony of the KRG. As its obvious, there are disputes between the Kurdish government and the central government of Iraq over number issues including, geographic territories. These disputes areas are very wealthy in large amount of oil & gas. Due to the lack of political stability and security reasons, neither governments nor companies (in particular, international companies) have been able to carry out their business comfortably in these areas.

Figure 2: Kurdistan Region and disputed areas.

Source: crisis group 2018

After the Kurdish people rebelled against the former Iraqi regime (Saddam's regime) in 1990, some progressive movements were made by Kurds in almost all sectors. But with regards to hydrocarbons, the progress was much slower. For example, very little progress was made only in the oil field of Taq Taq in 1994. The KRG finally was able to test and complete Taq Taq-1 and Taq Taq-2 ‘signalling the first production from Kurdistan’^[4]. The products of these fields were used by the KRG only for local needs. The UN sanctions, unclear political situation and civil war restricted the KRG in expanding its activities and signing contracts with international companies to work in the region. And indeed, the KRG itself did not have the technical or financial resources to carry out such development in the field of oil exploration or promote it on its sites. The situation continued in this rhythm until 2003. Since then, the Kurds gradually have become a great player in almost all sectors of the new Iraq, including hydrocarbons.

The Kurdish authorities played significant role in the process of regime change (Saddam regime) in 2003 and rebuilding of the new Iraq. Prior to this period, a number of attempts were made at the local and international levels to re-designing the political governance of Iraq after Saddam. In this regard, the case of Iraqi hydrocarbon had predominantly attracted the special and substantial attention. The main players –the Americans, the British, and the Iraqis – eventually came to the conclusion that the energy sector should be denationalized. As ‘on 1 June 1972, the [former] Iraqi government nationalized all the assets of the Iraq Petroleum Company (IPC), a consortium of US, British, Dutch, and French oil firms operating in Iraq’ ^[5]. They were further advocated for creation of a Production Share Agreement (PSA) model of contracts for Iraq to attract foreign investments[[11]].

Based on these understanding, the new authorities formulated the Constitution of Iraq in 2005. The constitution recognized the KRG as an official foundation, as well as increased the power of KRG in new Iraq. It provided the Kurds a good opportunity to see some of their ambitions. For instance, the Articles 116-121 highlighted the powers and actions of the Kurdistan Region as a ‘constituent unit with political, juridical and military power to administrate internal and external affairs’. The Iraqi Constitution also recognized and adopted all laws passed by the Kurdistan National Assembly since 1992.

Theoretically, the Kurdistan region, within the framework of the Iraqi Constitution, can do and achieve too much, but practically most of them are inaccessible or revoked. Even in some cases, the Constitution becomes a major contentious fact between the central government of Iraq and the government of Kurdistan. Disputes such as: first, about the lands and geographical boundary of the KRG-Iraqi Central government; second, about the management of Iraqi hydrocarbons (oil and gas). The constitution was vaguely structured as to how to address these problems.

The Constitution defines the Iraqi energy as a national resource that should be managed by Iraqis and serve all Iraqis equally. Article 109-115 clarify ‘the guidelines for the political and juridical structure of Iraq as federal state’ ^[6]. And they further focus on energy issue between the central government and regional authority. Eventually, the KRG began conducting oil and gas operations on its territory in accordance with Articles 111,112,113. In particular, the KRG can see its full rights to deal (exploit and vend) with hydrocarbons under Article 112. The article shows that the Iraqi government has authority over oil fields, further specifying that all regions and provinces receive economic shares of oil fields within the territory of regions or provinces.

Oil and Gas Provisions of Iraq’s Constitution

“Article 111: Oil and gas are owned by all the people of Iraq in all the regions and governorates.

Article 112:

First: The federal government, with the producing governorates and regional governments, shall undertake the management of oil and gas extracted from present fields, provided that it distributes its revenues in a fair manner in proportion to the population distribution in all parts of the country, specifying an allotment for a specified period for the damaged regions which were unjustly deprived of them by the former regime, and the regions that were damaged afterwards in a way that ensures balanced development in different areas of the Country, and this shall be regulated by a law.

Second: The federal government, with the producing regional and governorate governments, shall together formulate the necessary strategic policies to develop the oil and gas wealth in a way that achieves the highest benefit to the Iraqi people using the most advanced techniques of the market principles and encouraging investment” ^[7].

The report of the Iraq Study Group, entitled the Baker and Hamilton Report, which followed the Iraqi oil and gas issue, concluded with the ‘Article 112 authorizes the KRG to explore, extract and sign oil contracts with oil companies’^[8]. The Kurdistan region, on the one hand, relied on this understanding, and on the other hand, since the Iraqi Parliament could not to pass a Federal law on oil and gas, issued its own (KRG) law on oil and gas in 2007. The fact that this law paved the way for the KRG to independently conduct its oil and gas revenues (exploiting and vending on the world market).

“The Kurdistan region oil and gas law.

Article 18: The Regional Government, consistent with the conditions stated in Article 19 of this Law, shall:

First: agree with the Federal Government in the joint management of oil and gas extracted from Current Fields in the Region;

Second: cooperate with the Federal Government in formulating strategic policies to develop the Petroleum resources of the Region in a balanced manner compared with the other Petroleum activities throughout the country, and in a way that achieves the highest benefit to the Iraqi people using the most advanced techniques of market principles and encouraging investment, consistent with the provisions of Article 112 of the Federal Constitution;

Third: cooperate with an intergovernmental federal oil and gas council (the Federal Oil and Gas Council), the composition of which is to be agreed with the Regional Government, to establish the standards, model contracts, and commercial terms for negotiations and contract award procedures in Iraq” ^[9].

Immediately after the adoption this law, the KRG began to formulate its own energy strategy. The aim here was to draw the attention of international companies to Kurdish oil & gas. In this regard, the KRG could record great level, and very quickly emerge as a significant player in Iraq’s energy sector. At the beginning the KRG has “sought to build an energy industry from scratch in the shortest time possible”. And it further looked to establish its own energy sector, independent of Baghdad. That this could ultimately help guarantee the KRG’s future full economic independence.

Statistics show that KRG's strategic project in the oil sector was initially successful. In Iraq, for the year 2012, 128 licenses were issued to foreign enterprises in the oil and gas sector with a potential value of over $ 6.3 billion, out of which 67% went to the KRG ^[10]. From 2005 to 2015 almost ‘200 wells have been drilled encountering recoverable reserves estimated to be in excess of 15 billion barrels of oil equivalent’. Other statistics show that the KRG over five years (from 2010 to 2015) can attract about 16.2 billion dollars of foreign investment. Most of these was coming from oil sector^[11]. And during 2012, more than 40 foreign companies from 19 different countries actively worked in the Kurdistan oil fields (see the figure 3). The companies came from countries such as US, Canada, UK, Turkey, Russia, China, Australia, Africa, Spain, India and some others.

Figure3: Foreign oil companies investing in Kurdistan region of Iraq for 2011-2012.

The name and originality of those companies which invest in oil exploration and development in the region and have signed contracts with Kurdistan regional government to work in one or more blocks

Sources: (The oil and gas year, 2012; Amon, 2011; The websites of the companies)

Initially, the KRG exported its oil by tank-trucks to Turkey and Iran, which led to its transformation in small quantities and it costed too much. This continued until it built its pipeline by the end of 2013. Since then, the oil export process has become more regulated with the commissioning of the KRG oil pipeline in 2014. It began with the transfer of 150,000 b/day from the territory of the KRG to Ceyhan port in Turkey.

Figure4: Kurdistan Pipeline 2014.