Turkey eyes up the neighbours

By bne IntelliNews July 11, 2014

David O'Byrne in Istanbul -


The ongoing ISIS insurgency in Iraq and the occupation of the oil-rich Kirkuk region by Kurdish Peshmergas has presented Turkey with a serious dilemma. On the one hand there is the potential for more oil and gas; on the other an independent Kurdistan and what that means for its own restive Kurdish population.

The increasing strength and influence of the Kurdistan Regional Government (KRG) offers the promise of increased flows of oil through Turkey and the future prospect of Turkey being able to purchase gas from the region at a substantial discount to market prices.

With the Iraqi central government in Baghdad unable to deliver on promises of gas supplies or increased crude exports through Turkey via the Kirkuk-Ceyhan pipeline, the past five years has seen Ankara grow increasingly close to the KRG administration in Erbil. Last year saw the announcement of two major gas deals between Turkish entities and the KRG, followed in December by the commencement of exports of crude from the region via Kirkuk-Ceyhan – albeit opposed by Baghdad, which has threatened legal action.

For Turkey, faced with an increasingly antagonistic government in Baghdad, the potential of oil and gas flows from Erbil has been impossible to turn down. "They [Ankara] have put their chips in with the Kurds and in the short term it may work, but there are many uncertainties and risks," says Emre Deliveli, economic columnist on the English-language daily Hurriyet Daily News.

Chief among these is the ongoing ISIS insurgency in northwest Iraq, which has allowed Peshmerga forces of the KRG to occupy Iraq's oil-rich Kirkuk region and ISIS to cut the Kirkuk-Ceyhan oil export pipeline, which carries Kirkuk crude to Turkey. With ISIS appearing to have no game plan beyond occupation and destruction, restoring the flow of oil appears to depend entirely on their removal. But this eventuality is unlikely in the short term, given that three months on from general elections Iraqi Shiite leader Nouri al-Maliki is refusing to allow the formation of a government without him as prime minister and opposition parties have refused to support a formal declaration of a state of emergency.

Little incentive to return

Similarly, the KRG's occupation of Kirkuk has an appearance of permanency. 

Having been part of the original Kurdistan region until the1960s and with Kurds still believed to be the largest ethnic group, Kirkuk has been long claimed by the KRG as part of its territory. And with the region believed to hold between 5bn-6bn barrels of crude, the incentive to return the region to Baghdad's central control is minimal. "Kirkuk can easily produce 350,000 barrels a day, which means if they can sell the oil, the KRG could be exporting up to 500,000 b/d by the end of the year," says Schwann Zulal, CEO of Carducci Consulting, which has offices in London and Erbil.

Zulal explains that the KRG is close to completing a 40km section of pipeline that will allow crude from Kirkuk's Khurmala fields to flow through its own pipeline network, bypassing the ISIS-controlled region, and then via the Turkish section of Kirkuk-Ceyhan to Turkey's Mediterranean export hub at Ceyhan. Such a hike in exports would provide a boost for Turkey, which has long complained at the loss of transit revenue due to the low flow through the 1.6m b/d capacity Kirkuk-Ceyhan line.

Zulal explains that everything depends on whether the KRG can get the go-ahead to export the oil. However, currently such a move is opposed by both Baghdad and the US, which has been lobbying for a new Iraqi government to be formed without al-Maliki.

Unable to sell most of the crude it has already exported through Turkey and with Baghdad politically deadlocked, for the time being the KRG appears unwilling to risk further trouble. However, this could change if the KRG pushes ahead with plans for a referendum on full independence, and claim full rights to export its oil reserves and the region's estimated 6 trillion cubic metres (cm) of gas reserves.

That would be good news for Turkey, which has long been looking for cheap gas supplies to meet growing demand and pressure existing suppliers Russia and Iran for more competitive prices. "They have a plan to send 6bn cm/y of gas to Turkey by 2016, but 2017-18 would be more realistic," says Zulal, pointing to the need for considerable infrastructure investment to allow exports to start.

Independent thinking

The question remains, though, whether cheap gas will be sufficient incentive for Turkey to accept an independent Kurdistan on its borders, which could in turn act as incentive for Turkey's own fractious Kurds to push for greater autonomy.

Early July saw a Kurdish deputy in the Turkish parliament submit a bill calling for local authorities in Turkey's mainly Kurdish oil-producing regions to receive 50% of production revenues. The motion has no hope of being passed, but has been widely understood as a signal of more to come.

For the time being, the Turkey's governing Justice and Development Party (AKP) has been sending mixed signals, stopping short of outright condemnation of an independent Kurdistan. With presidential elections set for August and general elections next year, the AKP government has been occupied with a Kurdish reform package, aimed at both improving the rights of the country's estimated 14m-25m ethnic Kurds, and securing their support at the ballot box.

The question is whether Turkey's Kurds, long ignored by Ankara, will be content to accept overdue concessions, or whether they will be more impressed by the newfound oil wealth and independence of their southern neighbours.


Turkey eyes up the neighbours

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