Iraq Kurds Use Army to Boost Control Over Kirkuk Oilfields

Jul 11, 2014 5:00 pm ET

(Updates with report of suicide attack in fifth paragraph.)

July 11 (Bloomberg) -- Iraq’s semi-autonomous Kurds increased their control over oil resources in the north of the country after deploying armed forces to the Kirkuk and Bai Hassan oilfields.

Kurdish Peshmerga forces took control of the two sites at the country’s fourth-biggest oil field today and ordered workers from Iraq’s state-run North Oil Co. to leave, the Oil Ministry said in an e-mailed statement. The Kurdistan Regional Government said in response that it acted to prevent the central government damaging an oil export pipeline. The Oil Ministry in Baghdad denied the claim.

“Given the political context, the Kurds are solidifying their control,” Richard Mallinson, an analyst at consultants Energy Aspects Ltd., said by e-mail from London. “The Kurds have signaled their intentions to start moving Kirkuk oil through their pipeline network,” and this is another step toward making their ambitions a reality, he said.

Iraq’s minority Kurds, who historically have resisted control by Arab-dominated governments in Baghdad, are charting a course to independently develop oil reserves the KRG calculates at 45 billion barrels -- equivalent to almost a third of Iraq’s total deposits according to BP Plc data. Kurdish armed forces moved last month outside their region in northern Iraq and occupied the long-disputed territory around Kirkuk after the Iraqi army fled from Islamist militants.

Later today, a suicide bomber struck a checkpoint at the southern entrance to Kirkuk city, killing 13 people, Iraqi news agency al-Mada reported, citing the local health department.

National Unity

The Oil Ministry demanded that the Kurds “withdraw immediately from these oilfields,” according to the e-mailed statement. The move is unconstitutional and “a threat to national unity,” it said.

The KRG said it acted to prevent damage to an oil pipeline built to allow the export of crude from fields in the Kirkuk area through the Kurdish region, according to an e-mailed statement.

“Kirkuk Oil Protection Forces moved to secure the oil fields of Bai Hassan and the Makhmour area, after learning of orders by officials in the federal Ministry of Oil in Baghdad to sabotage the recent mutually agreed pipeline,” according to the KRG statement. North Oil Co. staff had been instructed to dismantle or render inoperable valves on the pipeline, it said.

“This talks is ridiculous and we totally deny it,” Asim Jihad, spokesman for the Oil Ministry in Baghdad, said by phone.

The KRG’s accusations are false and North Oil Co. staff were only taking action to protect equipment at the oilfields, Abdul Ilah Qassim, adviser to Deputy Prime Minister Hussain Al- Shahristani, said by phone.

Lost Patience

“The Kurds have lost patience with any political process and are taking matters into their own hands on the ground,” said Julian Lee, an oil strategist who writes for Bloomberg First Word. The observations he makes are his own. “The Kurds’ allies in the U.S. and Turkey may be fine with tacitly supporting the export of crude from fields indisputably on Kurdish territory, but facilitating the export of oil from fields outside Kurdistan may be a step too far.”

Tensions between the Kurds and authorities in Baghdad have flared since the KRG began to export locally produced crude via a pipeline to Turkey without the central government’s approval. The Kurdish region increased output by more than 50 percent to 360,000 barrels a day last month as ships loaded crude delivered through the Turkish pipeline, the International Energy Agency said today.

New Pipeline

While Kurdish forces have occupied the area around Kirkuk since last month, oilfield facilities had remained in the hands of North Oil Co., Energy Aspects’ Mallinson said. The KRG had previously said its troops would guard the Kirkuk oil hub until a referendum on regional independence could be held.

The new pipeline through the Kurdish region was built to allow the export of crude from the Makhmour, Avana and Kirkuk oilfields after the main Iraq-Turkey oil link was shut down by sabotage in March, the KRG said. The Avana and Makhmour fields produce about 110,000 barrels of oil a day, which will be used primarily to fill the shortage of refined oil products on the domestic market, it said.

As much as 325,000 barrels a day of oil production from fields in the Kirkuk area could be exported through the new pipeline, KRG Natural Resources Minister Ashti Hawrami said in London on June 17.

--With assistance from Kadhim Ajrash in Baghdad, Nayla Razzouk in Dubai and Zaid Sabah in Washington.