Iraq upheaval threatens oil development plans

Published on NewsOK Modified: June 23, 2014 at 1:14 pm •  Published: June 23, 2014
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BAGHDAD (AP) — The turmoil in Iraq has thrown the OPEC member's ambitious plans to boost oil production into doubt, threatening to crimp its most vital economic lifeline.

Northern oil fields imperiled by the militants' advance have been shut down, and companies have begun evacuating workers elsewhere in the country. Iraq's Kurdish minority has moved to solidify control over the northern oil-rich city of Kirkuk and other disputed areas, weakening Baghdad's claims to the energy riches buried beneath while bolstering the Kurds' aspirations of greater autonomy.

The heart of Iraq's oil industry is in the mainly Shiite south, which so far has been spared this month's advance by militants led by the al-Qaida spin-off group known as the Islamic State of Iraq and the Levant.

The insurgents quickly took over Iraq's second-largest city of Mosul, Saddam Hussein's hometown of Tikrit and smaller communities in the Sunni heartland as government forces melted away. As they disappeared, Kurdish security forces pushed deeper into contested territories abutting their self-ruled northern enclave.

A senior Iraqi oil official said Baghdad has lost at least 400,000 barrels a day because of production cuts at oil fields in Kirkuk and nearby towns. Authorities also have had to shut down the Beiji refinery, which has been the scene of fierce clashes. Authorities have only been able to produce 30,000 to 40,000 barrels a day from Kirkuk fields to feed a small refinery, the official said.

The Beiji refinery and a nearby power plant supply Iraq with a third of its refined fuel and nearly a tenth of its electricity, according to Barclays analysts.

A major export pipeline controlled by Baghdad that traverses restive Sunni-dominated areas of northern Iraq was shut down earlier this year due to terrorist attacks.

So far, the Kurds have not approached Kirkuk's oil fields or tried to pump oil through an independent export pipeline through Turkey that they built late last year, the oil official said.

But their advance has left them "much more well-positioned to retain full control of the contested territories," including Kirkuk, said Ayham Kamel, Middle East and North Africa director at Eurasia Group in London.

"The new reality embodies Kurdish aspirations and withdrawing from all of these territories is close to impossible," Kamel said.

Kirkuk, 180 miles (290 kilometers) north of Baghdad, is home to Arabs, Kurds and Turkmen, who all have competing claims to the area. Kurds have long wanted to incorporate it into their largely autonomous region, but Arabs and Turkmen are opposed.

In the 1970s and 1980s the Arab-dominated government in Baghdad drove hundreds of thousands of Kurds out of Kirkuk and surrounding regions, settling Arabs from the south in their place in an attempt to pacify a region that had seen repeated revolts.

With an eye on statehood, the Kurds appear to be gearing up for a conflict with Baghdad on the issue. The prime minister of the Kurdish region, Nechervan Barzani, recently said there "is no way to go back to pre-Mosul Iraq" and that any political compromise must take into consideration the reality on the ground.

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