Handling Our Oil And Gas

August 26, 2011

The Kurdish Peshmarga forces are now in Diyala to deal with the aftermath of unfinished business that could have been solved ages ago — provided that there was the will, trust and initiative on both sides.
The troubles in Diyala’s disputed areas have put another issue on the back burner: The long overdue settlement of Iraq’s oil and gas industry.
It’s only a matter of time, however, before it escalates to yet another confrontation. The disorganization, disunity and the firefighting attitude of the Kurds is allowing elements in Prime Minister Nuri al-Maliki’s inner circle to control the agenda for developing Iraq’s natural resources.
After conversations with sources familiar with the issue, here is where we are:
Earlier this year, Kurdistan Regional Government (KRG) Prime Minister Barham Salih struck a deal with Maliki in Baghdad to allow exports to flow from the Kurdistan Region. This was hailed as a confidence-building measure, and many saw it as the first sign of a potential breakthrough in the long stalemate over the oil and gas issue.
This agreement has given more than US$10 million dollars a day to Iraq’s budget, but has not been welcomed by the Kurds’ so-called partners in the Baghdad government.
In order to pay the region’s international oil companies their extraction costs, it was agreed that the KRG would draw down up to 50 percent of the KRG’s export revenues from Baghdad. An initial payment of US$243 million was made in May this year — but since then, nothing.
Senior politicians aligned with Maliki seem to have a deep ideological resistance to implementing constitutional articles which clearly state that the regions should manage undiscovered natural resources.
With many Kurdish politicians seemingly distracted or unaware of the issue, the authorities in Baghdad changed the conditions of the deal with Erbil. New conditions were put on payments which were not in the original agreement signed by the Kurdish prime minister.
Baghdad said that no further payments would be made until the companies’ receipts were audited. According to analysts, such an audit process is required of all international oil companies in Iraq and often takes months to complete.
But they say these are annual audits. “Companies working in the south of Iraq, BP for example, are not required to submit audits before each cost and profit recovery payment is made,” said a source familiar with the issue.
Apparently this was not part of the agreement that Salih struck with Maliki. These conditions have reportedly been forced on the Finance Ministry in Baghdad by Deputy Prime Minister and former Oil Minister Hussein Shahristani, who is known for his rigid stance on centralized rule.
International oil companies exporting from Kurdistan have reportedly threatened to halt production within the next few weeks unless payments are made according to the agreed mechanism.
On January 31, I wrote about the relationship between Erbil and Baghdad and how the two cities are stuck with an ongoing saga of tense relations over multiple issues.
The above clearly indicates that we are moving towards another serious crisis.
The rise of the oil and gas industry in Kurdistan is one of the few economic success stories in the region, but it still requires a great deal of work and organization. Perhaps the Kurdish leadership doesn’t seem to take it seriously or even understand the gravity of the issue. And those who do aren’t being taken seriously by Baghdad.
An open, organized and transparent oil and gas industry is vitally important for the future of Kurdistan. It seems that the portfolio needs to be handled directly by Kurdistan Region President Massoud Barzani in order to be taken seriously by Baghdad.
With proper advice and consultation, he could publicly and clearly lay out the strategic agenda for Kurdistan’s oil and gas sector
The issue is too important to be left to the Kurdish representatives in Baghdad or others in Iraqi Kurdistan who are not taken seriously in Baghdad.

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