Kurdistan: the final frontier for oil?

The recent inaugural Oil and Gas conference in Erbil, the capital of the largely autonomous Kurdistan region in Iraq, attracted 600 people including senior politicians and executives from across the world in what is likely to be a regular feature of the global energy scene.

The prestigious gathering conveyed growing business and political confidence in a place that was once a byword for poverty and oppression and an economic backwater.

The conference was set alight by news that the world’s biggest oil company ExxonMobil had decided to settle in the region.

It shouldn’t be surprising that this behemoth would want to do business in Kurdistan. After all, it is now widely seen as the final frontier for onshore oil and gas. Its energy reserves had been deliberately neglected by Saddam and it is only since what most people here call liberation in 2003 that the scale of its natural assets has been mapped.

The scale of often easily recoverable assets has come as a pleasant surprise. Experts estimate that it has reserves of 45 billion barrels of oil which could make it the world’s fourth largest producer and possibly as significant as Libya.

There are major gas reserves – possibly a century’s worth. Such energy assets make Kurdistan a potentially powerful strategic partner in ensuring energy supplies to Europe via Turkey with which the region’s relations have substantially improved, although there is much work to do in lifting the position of Kurds in Turkey.

And the Kurdistan region also has untapped potential in minerals such as phosphates, iron, copper and marble. Then there is agriculture and tourism in what is the safest part of Iraq, where there have been no attacks since 2007 and where there have been 200 terror-related deaths since 2003 compared to about 120,000 in the rest of Iraq in the same period.

Yet the Exxon decision is hugely controversial in Baghdad. The federal government maintains that the Kurds don’t have the legal right to conclude their own contracts without permission. The Kurds argue that their regulatory regime is consistent with the Iraqi constitution agreed by a popular vote in 2005.

However, Baghdad blacklists oil companies that operate in Kurdistan from the larger scale of work in the south. Both sides accept the need for external investment and expertise but differ on the terms.

The Kurds have been highly successful in concluding advantageous deals with over 40 smaller oil companies from 17 countries, including smaller British ones although they have recently been joined by the former BP Executive Tony Hayward, who was at the conference and whose Vallares company has now merged with a Turkish company.

The Kurdish minister for natural resources, Ashti Hawrami, himself a former oil man with North Sea experience, has also done very well in encouraging corporate social responsibility to build schools and other infrastructure. The Exxon entree may encourage other oil majors. An open question is whether BP would emulate Exxon.

Groups such as the APPG on Kurdistan have long argued that the Kurdistan region is open for business and could be a gateway to the rest of Iraq as its security improves. My initial visit to Kurdistan five years ago was to meet trade unionists. They urged British investment with a Communist leader asking to ‘borrow your bourgeoisie’ as they didn’t have one. The ‘bourgeoisie’ is finally getting the point with a variety of small British companies going to Kurdistan to see for themselves. APPG Co-chair Meg Munn MP formally opened the recent large trade fair in Erbil together with the president and prime minister of the Kurdistan region.

But the Exxon dispute is not merely a technical one about contracts, but is potentially about the future of Iraq as currently constituted.

The Kurds did not voluntarily join Iraq nearly a century ago and were denied statehood with Kurds dispersed across Turkey, Iraq, Iran and Syria.  Successive Iraqi regimes repressed the Kurds who are often looked down on by Arab chauvinists. This led to decades of genocidal acts most notably at Halabja where 5,000 people were killed by weapons of mass destruction on one day in 1988. Some 180,000 people were killed overall and thousands of villages were destroyed. Farmers were shot on sight, wells were poisoned and people forced into urban concentration camps as part of a systematic effort to eliminate the Kurds.

The Iraqi Kurds say they have exercised their right to self determination by opting to stay in Iraq but on condition that it is democratic and federal with substantial autonomy for the region. If Baghdad reverts to centralised dictatorship all bets are off the table.

They have refused to wait for Baghdad to get its act together. The Kurdistan prime minister, Barham Salih, who himself studied in exile at Cardiff and Liverpool, told the conference that the Kurds will never again be held hostage to the whims of bureaucrats in Baghdad. He pointed out that if they had conformed to the sluggish Baghdad timetable there would still be just two hours of electricity a day compared to the current twenty in the region. This is the backdrop to the long running dispute over contracts and the need for an overarching hydrocarbons law.

The Exxon decision could force the pace and change the balance in favour of the Kurds and may have Baghdad over a barrel so to speak. Exxon’s operations in the south are critical to Baghdad’s plans to get the oil flowing and finance essential services such as electricity supply which is about four hours a day. Baghdad could expel Exxon but probably after months of legal wrangling. It seems highly improbable that the world’s biggest oil company would have walked into this blindly. The company is huge and its wealth dwarfs that of Iraq. The best hope is that the two energy ministers ignore the dinosaurs and agree a pan-Iraq law that benefits both sides.

It would be better that such an accommodation were reached soon as the impending withdrawal of American troops could destabilise Iraq. It would also be in line with the agreements brokered by the Kurdish president which facilitated the formation of a coalition government in Baghdad after nearly a year of stasis.

An accord would then provide the needed stability for the country’s vast natural resources to be exploited and to accelerate their use of the revenues to increase basic services and further isolate extremists.

Saddam used some of the country’s vast natural wealth to benefit his narrow support base, repress everyone else and finance an aggressive foreign policy. Energy assets can now finance the good life without succumbing to the soulless opulence and a seething underclass of other countries in the Middle East. There have been huge advances for ordinary Iraqi Kurds with average per capita income increasing from $375 to $5,500 in the last decade and there is an annual growth rate of 12 per cent. The region could soon become a net contributor to the Iraqi economy.

On my seven visits since 2006 I have seen a constant process of change with high-end hotels and malls but there is still much to do to provide more homes, hospitals, waste water and other facilities.

In common with other Middle East countries, half the population is under 25. Political leaders and friends abroad can highlight tremendous achievements by the Kurdish liberation movement but for most people this is a struggle conducted by their grandfathers and doesn’t entirely answer their needs now.

The Kurdish leadership has acquired increasing legitimacy by voluntarily embracing democracy and seeking to make the transition from a top-down and state dominated economy to a more open one with independent institutions and a larger private sector.

They actively seek external advice which makes them more vulnerable to criticism over issues such as rights for women, the media, prisons and the like. The need for change is acknowledged. The region is also lucky in having an opposition which can clarify issues. External political and policy knowledge-sharing can help develop a more competent political class. Remember that until recently the priority of politicians has been survival in a massively hostile environment.

The Kurds have a deep affection for the British with whom they have a chequered history but one that has been compensated for by the actions of John Major and Tony Blair. Our education standards, the quality of our goods and our politics are admired. After some initial nervousness about dealing with Kurdistan British ministers and companies now see that they can play a major and positive role.

There are also growing cultural links. The inaugural British Film Festival in Erbil, although the city has no cinema as yet, opens this week. It has been organised by the British consulate-general, Bankside Films and the Kurdistan regional government. Films on show include those with strong female role models (The Queen, Pride and Prejudice, Made in Dagenham), tackle social stereotypes (Billy Elliot) or discuss the Holocaust (The Boy in Striped Pajamas).

The UK’s National Film and Television School is organising workshops for young Kurdish filmmakers wanting to tell their stories which can help develop the nascent local filmmaking community and encourage films about the blossoming of the Kurdistan region after decades of dictatorship, genocide and isolation.

The Oil and Gas gathering highlighted the potential of the Kurdistan region and Iraq to lift the standards of millions of people and for Iraq as a whole to regain its rightful place as a wealthy, just, democratic and influential country in the Middle East. Oil and gas could become a blessing rather than the curse it has been in the past. And Britain is being asked to play a positive role too.

November 2011.


Gary Kent is administrator of the All-Party Parliamentary Group on the Kurdistan region in Iraq, writing in a personal capacity. He writes a regular column, Window on Westminster, for the English-language Kurdish newspaper, Rudaw.


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