The referendum on independence for the hitherto autonomous Kurdistan Region of Iraq (KRI) , held on 25th September 2017, has brought global attention. It is well-understood that the region’s oil and gas resources are a critical factor for its future and for its neighbourhood. Along with the referendum, there have been important recent political, military, economic and industry developments concerning the KRI. This report is therefore intended to build on my earlier study for the Oxford Institute for Energy Studies , and to bring the story up to date from the start of 2016. It should be read in conjunction with the earlier study, as I do not here cover all of the historical and background material.
Despite knowledge of the presence of oil dating back to ancient times, the history of the KRI’s petroleum industry essentially goes back no further than 2005. The presence of larger oil-fields elsewhere in Iraq, and political problems, insurgency and repression in Kurdistan, particularly under the Saddam Hussein regime, prevented most hydrocarbon exploration and development. However, Kirkuk, where oil was discovered in huge quantities in 1927, though not part of the official KRI, also voted in the referendum. Various other outlying areas with petroleum resources also came under KRG control, particularly since the onslaught of ISIS in 2014 and the subsequent counter-offensive, and with Kirkuk, were then returned to federal government control in October 2017. These areas are also covered here.
Since 2014, the difficulties caused by lower oil prices, the KRI’s economic crisis, ISIS and industry disappointments have quietened media discussion of the region’s oil industry. Much good political analysis has been produced, but understanding the KRI’s political future depends critically on its political economy and economic fundamentals and those, in turn rest primarily to date on hydrocarbons. The development of the region, and the recent survival of its government, has depended firstly on budget transfers from Baghdad, almost entirely sourced from oil exports, and subsequently on the region’s own oil production.
Consequently, the KRI’s petroleum has become crucial for the fight to destroy ISIS, a fight of keen interest to the international community. Attracting almost as much international attention, it also strongly affects the future of the Kurds and other inhabitants of the KRI, the future of Iraq itself, the relations of the region with the neighbouring countries, and Kurdish minorities in Turkey, Syria and Iran.
The study of the KRI’s oil industry also has wider significance for the global energy business. It is a rare recent case of the discovery and development of a major new onshore conventional petroleum province. Although not an enormous producer, it is, considered separately from federal Iraq, a significant and effectively non-OPEC producer. As a gas exporter it can play an important role in the energy balance and diversification of Turkey’s energy market.
Its story illustrates the strategies and challenges of various species of oil companies – ranging from local private firms, smaller entrepreneurial companies, mid-size international firms up to super-majors, and internationalised national oil companies – and how they deal with technical and political risk. And it shows ways in which sub-national regions can use their natural resources to further autonomy and even independence. This may be relevant to other resource-rich territories, for instance eastern Libya, Yemen’s Hadhramawt, or Western Sahara.
Section 2 of this paper outlines the recent history and development of the KRI’s hydrocarbon resources, concentrating on new events in the 2016-17 period. Section 3 examines the petroleum industry, its current status and future potential. Section 4 considers the economic, legal, and political issues and debates, and the role of politicians, outside actors, and international oil companies. Section 5 covers the independence referendum and its potential significance for the KRI’s petroleum industry. The study concludes with Section 6, discussing the wider implications of Kurdish oil and gas, the regional implications, and some lessons for other comparable territories.Download Report