Turkey ready to drop Kurdistan pipeline project, claims Iraq

By bne IntelliNews February 26, 2013

bne -

Iraq claimed on February 25 that Turkey has pledged not to agree to any extensions of oil and gas pipelines out of Kurdistan without the central government's approval. The claim suggests Ankara could be backing off from its aggressive stance on sourcing energy in the semi-autonomous Iraqi region.

"Turkey has officially informed Iraq it rejects extending oil and gas export pipelines from the Kurdistan region to pass through Turkey without approval from federal government," Iraq's oil minister, Abdul Kareem Luaibi, told the country's state news network, according to Reuters.

Energy-hungry Turkey has antagonized Baghdad due to oil and gas deals it has struck with the Kurdistan regional government (KRG) in recent months, and has increasingly been drawn into a standoff between the pair over energy revenues.

Kurdistan's Minister for Natural Resources Ashti Hawrami said earlier this month the KRG is pressing ahead with plans to build its own oil export pipeline to Turkey. The Turkish energy ministry declined to comment on the Iraqi claim that it will now refuse any such project without Baghdad's say so.

Iraqi Prime Minister Nuri al Maliki's media advisor, Ali al-Moussawi, said Turkey's rejection of the pipeline would help enhance bilateral relations between Ankara and Baghdad, which have deteriorated over the past year. "The government welcomes Turkey's move, which will significantly help to stabilize the region and also strengthen relations between central government and Kurdish region," he said.

Fear of missing out

Caught between Russian refusals to hand over a price discount on gas and US sanctions on Iran - one of Turkey's largest suppliers of oil and its second largest supplier of gas - Ankara claims it cannot afford to be left out of a potential energy rush on its doorstep in Kurdistan. It has noted that international energy majors such as Exxon Mobil are active in the area, and its worries over missing out will not have been quelled by reports this week that Russia's Gazprom Neft has reached an agreement with the KRG.

However, Baghdad continues to threatened repercussions for anyone bypassing it in deals on the country's oil and gas exports. Kurdistan halted oil exports through the Baghdad-controlled Iraq-Turkey Kirkuk pipeline in December in a dispute over payments to oil companies operating in the autonomous region. Increasing Baghdad's anger, Anglo-Turkish producer Genel Energy has been exporting crude by truck to Turkey to circumvent the stoppage.

In early January, Kurdistan began exporting crude oil directly to world markets through Turkey. The central Iraqi government reiterated its threats of action against the KRG and foreign oil companies working there to stop "illegal" crude exports.

Ankara has maintained a bullish approach throughout, with a broad energy partnership between Turkey and Kurdistan ranging from exploration to export in the works since last year.

Backing off

However, with reports that Baghdad and the KRG are approaching an agreement on a workable mechanism for payments to foreign producers in the semi-autonomous region, Ankara has recently given signals that it may be ready to back off.

Turkish energy watchdog EPDK again delayed a decision on whether to award a license for Turkish firm Siyah Kalem to import gas from Kurdistan on February 22. Siyah Kalem had sought extra time for its application due to difficulties in reaching agreement with the KRG, and now has until the end of 2013. Turkish officials initially claimed that a purchase agreement signed with the KRG was legally sufficient to allow the imports to start, but later confirmed any such agreement would need to be approved by Baghdad.

That's quite some climbdown for Turkey, which is increasingly trying to position itself as de facto leader of the region, a role its rapidly expanding economy is helping to turn into a reality. Prime Minister Erdogan's government has proved it has the confidence to take on the likes of Israel, Russia and the US in recent times.

However, it's thirst for energy is such that it needs to box a little more cleverly - an expanded and threat free energy deal with neighbouring Iraq would clearly be the better option than a long fight with the US-backed government in Baghdad. Washington is also the prime mover pushing Ankara to reduce its dependence on Iranian energy.

It's likely that the White House hotline to Erdogan has been busy recently, with the US claiming to be increasingly concerned that the spat between Baghdad and the KRG could lead to a break up of Iraq.

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