View Full Version : Turkey and hydrocarbons in Iraq

01-15-2013, 02:52 AM

Turkey's energy policy on hydrocarbons, crucial for the fueling of a growing Turkish economy, was given a facelift a few years back with the expectation of Iraq coming back to the oil and possibly gas market. Therefore, Turkey hedged its bets according to good neighborly ties with the Baghdad government and played a key role in bringing about political stability in the country by convincing Sunnis to engage in the political process.

At a time when many international partners of Iraq were shying away from Baghdad and the southern provinces due to huge security and safety concerns, Turkish Prime Minister Recep Tayyip Erdoğan led a delegation of businessmen and eight ministers to Baghdad where Turkey signed 48 agreements promising cooperation on trade, oil and gas, transportation, infrastructure, health care, terrorism and much more. The visit, held in October 2009, laid the legal framework for Turkish companies to enter into Iraq and help build the war-ravaged country from scratch.
It is therefore no surprise today that most foreign companies operating across Iraq are Turkish, including some 100 companies in Basra province in the south. Of course northern Iraq, controlled by the semi-autonomous Kurdistan Regional Government (KRG) was no exception. In this relatively stable and safe area, 1,085 out of a total of 2,241 foreign companies from 78 countries were registered as Turkish companies, representing 48 percent of foreign companies in the region in total as of October 2012. In 2011, 8,588 Turkish firms exported some $8.3 billion worth of goods to Iraq. The export volume increased to $10.7 billion in 2012, an increase of 29 percent on a yearly basis. The Iraqi market today is the destination of 7.1 percent of all Turkish exports.
Therefore it is rather naive to think that Turkey will stay indifferent to the oil and gas industry in Iraq, while being very active and bringing its know-how and tech savvy in almost every other industry in the Iraqi economy. Turkish involvement was not just limited to Iraqi Kurdistan, but also included government contracts in the south of the country. Turkey's state-run Turkish Petroleum Corporation (TPAO) has been active in Iraq since 1994 and won contracts for the development of the Badra and Missan Oil Fields in 2009 and gas development contracts for the Siba and Mansuriya gas fields in 2010, worth some $5 billion in total. With some 7,000 oil wells contracted to TPAO for drilling, the company is instrumental in developing the Iraqi oil and gas industry to its full potential. The Kirkuk-Yumurtalık oil pipeline is an important outlet for Baghdad to export its oil to the international market. The pipeline carries nearly 500,000 barrels of oil every day, a figure that could rise to as much as 1 million in the future. In 2010, Turkey and Iraq renewed the duration of this oil pipeline deal for another 15 years.
In an unfortunate incident back in November, the Nouri al-Maliki government fired a shot across Turkey's bow by expelling TPAO from an exploration deal in oil-rich Basra province over political disputes between Baghdad and Ankara. The message was clear that the Shiite prime minister would target Turkish companies doing business in Iraq for Ankara's criticisms of the central government's marginalization of Kurds, Sunnis and some Shiite groups not aligned with Iran. Under these circumstances, Turkey should not be expected to stay away from the Kurdistan region, where it has cultivated very close ties in recent years. Asking Turkey to simply be a bystander, while dozens of other foreign companies, including American, Chinese, European and Russian firms, actively pursue energy deals with the oil-rich region in Iraqi Kurdistan, which is home to an estimated 45 billion barrels of oil and 6 trillion cubic meters of natural gas, is unrealistic.
Maliki seems keen to push Turkey away, while increasingly aligning himself with the mullah regime in Tehran. In fact, by deliberately destroying bridges between Ankara and Baghdad, he is losing the key country, perfectly positioned to help mend his troubled relations with Kurds. As Turkey helped Iraq get out of the vicious violent cycle in 2005, it could have also played a role in soothing tensions by facilitating talks between Baghdad and Arbil. However, Maliki's pro-Iranian policies continue to stigmatize the country's minority groups, paving the way for the possible dismemberment of the country.
Although Turkey has confirmed time and again that it prefers the territorial integrity of Iraq as a principled policy, when push comes to shove, Ankara can do away with the central government if Maliki is determined to serve the country to Iranian expansionist policies. The Kurdistan region, which is expected to produce 500,000 barrels per day (bpd) and 1 million by 2015, reaching 2 million in a decade, can satisfy much of Turkey's hydrocarbon needs. In 10 years' time, Kurdistan may even start exporting 20 billion cubic meters of natural gas to Turkey.
The Turkish government has not signed a bilateral agreement with the KRG so far and in fact business transactions are currently being conducted through private companies. But this may change in a flash if Maliki raises the stakes by adding fuel to the fire. Genel Energy, a Turkish-British oil firm which the KRG recently allowed to begin to export crude oil directly to world oil markets through Turkey, should be a strong signal to Baghdad in the sense that Turkey may part ways with the Baghdad government and deal with the KRG directly. If needed, I am sure legal scholars can always find an argument that the KRG is simply exercising its constitutional powers when negotiating an international agreement.
To understand how the oil and gas development in neighboring Iraq became very crucial for Turkey, one must look at the hefty energy bill Turkey pays every year. Turkey is expected to pay over $60 billion for its energy needs in 2013, amounting to almost 70 percent of Turkey's current account deficit (CAD). Considering that a total of 29 percent of Turkey's energy needs are met from oil and another 31 percent from gas, the Turkish government is under pressure to secure the supply of these strategic commodities to drive the growing economy. Turkey imports 98 percent of gas and oil, while domestic production comprises only 2 percent. Therefore, to claim that Ankara should not be interested in next door Iraq is simply unthinkable when the Turkish state oil company is involved in oil and gas development projects in places as far as Venezuela and Colombia.

It is also cynical that the US seems to be concerned over Turkey's dealings with the KRG, saying that Turkey's unilateral moves may pave the way for a possible breakup of Iraq, leaving the rest of the country under complete Iranian control. For one, the US had already served Iraq to Iran on a gold platter when it rushed to withdraw its troops without any solid agreement and safety precautions in place. Furthermore, it also did not prevent Iranian encroachment against other regional powers, primarily Turkey. When Turkey tried to bolster a political bloc across ethnic and sectarian lines in the previous elections, the US balked at the idea and stood behind Iranian proxy Maliki.
The common position between Turkey and the US on the support for the development of the Iraqi oil and gas industry and on the reconciliation of differences between Arbil and Baghdad seem to be dissipating as well. We'll see how talks in Washington between US officials and a visiting Turkish delegation led by the undersecretary of the Foreign Ministry, Feridun Sinirlioğlu, on Monday and Tuesday will turn out. If Turkish concerns over Maliki's sectarian policies are still not heard by the US, then the model partnership between the two NATO allies will be dealt a significant blow. Let's hope the emerging divergences on Iraq will not spill over to other issues of mutual concern.