Turkey tests regional clout with provocative Iraqi Kurdish oil deal

By bne IntelliNews May 15, 2013

bne -

Provoking fury from Baghdad, and likely a very tough discussion during his upcoming trip to the US, Turkish Prime Minister Recep Tayyip Erdogan announced on May 14 that a state-run company has signed a deal with ExxonMobil and the Iraqi Kurdistan Regional Government (KRG) to prospect for oil in Kurdish-administered northern Iraq.

While Erdogan brushed aside previous platitudes to respect the central Iraqi government by claiming Turkey has the right to pursue separate arrangements with the Erbil-based KRG, Baghdad branded the agreement "illegal".

Erdogan said the deal is a "step toward exploring for oil" in Iraq's Kurdish region, according to AP, adding that details of the deal will be revealed after his visit to the US, which kicks off on May 16. Washington has warned Ankara several times in the past that its dealings with the KRG risked splitting Iraq.

Turkish industry sources report that the likely partner is Turkish Petroleum International Company (TPIC), an arm of state-run Turkiye Petrolleri (TPAO). A spokesman for the company could not immediately be reached for comment, reports Hurriyet Daily News. The Turkish company will take an equity stake in a joint venture with Exxon and KRG, and join the production-sharing agreement, an Ankara-based energy source said. Another unnamed official said that any contracts will remain commercial agreements signed between companies, rather than inter-governmental deals.

The bullish approach of the PM is at odds with that of Turkish officials, who consistently say Baghdad is the central authority in Iraq. Erdogan has insisted, however, that Turkey cannot sit and watch an energy bonanza on its doorstep, having noted the deals the KRG has signed with US giant Exxon, as well as the likes of Chevron, Total, Russia's Gazprom Neft and Turkish-based Genel.

The TPIC agreement will be a significant further step in antagonizing the central Iraqi government. Until now, despite its thirst for energy, Turkey has limited its involvement to that of a customer and a transportation outlet for oil exports from the Kurdish region. However, the latest deal will see it start to play an active role in exploiting hydrocarbon resources in the semi-autonomous region.

"Countries from various parts of the world are taking steps to explore and produce oil in different parts of Iraq, and then deliver it to world oil markets. There's nothing more normal, more natural than Turkey, which provides all kinds of support and aid to its next-door neighbor, to take a step that is based on mutual benefit," Erdogan told reporters in televised comments, according to Dow Jones.

"The regional government in northern Iraq has a constitutional right to 17% of [oil and gas] revenues. Since it has the ability to readily spend that share, it's in its right to use that in exchanges with Turkey. It is possible for us to have mutual agreements, there's nothing to prevent that," the PM continued, in an apparent bid to justify the provocative move.

But a spokesman for the Iraqi energy ministry called the deal "illegal" and not in line with the Iraqi constitution. "Any agreement signed without the approval of the central government is illegal."

Both the KRG and Exxon have declined to comment.

The announcement came as Erdogan boarded a jet which will take him to meet US President Barack Obama, but the best Washington could offer in reaction to Erdogan's announcement was a limp-wristed comment that it does not support such deals. "Our position on energy trade from Iraq has been consistent and remains unchanged: The United States doesn't support oil exports from any part of Iraq without the appropriate approval of the federal Iraqi government," said Caitlin Hayden, a spokeswoman for the National Security Council.

The US is in a bind. Turkey is struggling to find alternative energy supplies to replace its purchases of Iranian oil and gas, the second-largest supplier to Turkey after Russia, following US sanctions. Tjose sanctions have forced Ankara and Tehran into surreptitious trade in order to exploit loopholes, and seen Turkish state banks under pressure due to their role. At the same time, Turkey is a key ally for Washington in the Middle East, and is on the frontline of the Syrian civil war, as well as Iraq and Iran. Ankara's strategic importance even saw the US press Israel into making a significant climbdown to start mending relations recently.

While Erdogan is clearly seeking to set out a negotiating position for the talks with the US this week, the announcement of the deal also comes as the Kurdish separatist PKK withdraws from Turkish soil after a conflict lasting three decades. Bullish defence of the rights of the KRG is presumably designed to reinforce the delicate peace process.

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