Challenges facing Iraq's uninterrupted oil supplies

Commentary Materials 5 April 2019 17:10 (UTC +04:00)
Continued supplies of Iraqi oil to global markets are crucial for the country’s post-war revival.
Challenges facing Iraq's uninterrupted oil supplies

Baku, Azerbaijan, April 5

By Azer Ahmadbayli – Trend:

Continued supplies of Iraqi oil to global markets are crucial for the country’s post-war revival.

In early February, Iraq and Jordan agreed to construction of an oil pipeline from the Iraqi Basra to Jordan with access to the Red sea. Why has Iraq decided to re-enter the project, which was planned to be implemented 6 or 7 years ago, but was postponed due to the dramatic events in Syria, and then in Iraq itself?

Currently, oil is exported from Iraq via two routes: from the Kurdish Autonomy north to Turkey by the Kirkuk-Ceyhan pipeline, and from the port of Basra to the South via the Persian Gulf. For Baghdad, both routes have their weaknesses in terms of geopolitical risks.

Oil pumping through the Kirkuk-Ceyhan pipeline, which is controlled by the authorities of the Kurdish Autonomy, was suspended for almost a year after the Kurdish Regional Government held a referendum on independence in September 2017. The already complex relations between Baghdad and Erbil further soured. The Iraqi authorities rejected the referendum, in return commencing a military operation and establishing control over the oil-rich disputed province of Kirkuk.

There are forces in Iraq beware of Kurdish separatism. The relations are aggravated by the unresolved issue of disputed territories. Both sides have been hesitant to address this painful issue for many years because of its extreme complexity, fearing of new turns of confrontation.

In November 2018, Baghdad and Erbil agreed to resume oil exports through the pipeline. Both sides are making efforts, wherever possible, to come to an agreement on the rights to Iraqi oil, profits, budget allocations and other issues.

However, despite the growth of trust, Baghdad and Erbil are more like two separate countries than a single state, and there are many factors in today's Iraq that could jeopardize the operation of this pipeline.

The southern route from Basra through the Persian Gulf to the world ocean has its own risks.

The Persian Gulf, strange as it might sound, is one of the safest places on earth, all thanks to hydrocarbons. From there, tankers with oil from all the Gulf countries, as well as LNG carriers from Qatar, go to the world markets. Oil supplies through the Hormuz Strait make a third of the global oil and oil products seaborne trade.

No state would wish an emergency to occur there, but the confrontation between the US with its allies, and Iran, does not allow ignoring the possibility of clogging the “Hormuz Bottleneck”, which will most likely lead to a global energy crisis.

Tehran recurrently makes statements about blocking of the Strait of Hormuz. The latest statement was made last summer in connection with Washington's statements on measures to zero the exports of Iranian oil. In response, Iran said that "we will make the enemy understand that the Strait of Hormuz will either be used by all, or by no one."

For Iraq, the closure of the Strait would be bad news even if the crisis were to last a short time, as 80 percent of Iraq's oil is produced from Basra oil fields and most of its exports fall on seaborne trade.

Construction of the pipeline to friendly Jordan with access to the Red sea should in large part mitigate the existing risks. However, this good initiative may also become a subject for debate.

On April 2, the provincial Council of Basra sent an official letter to the Prime Minister of Iraq and the Supreme Independent Electoral Commission, demanding the establishment of autonomy.

“All this aims to take Basra’s administrative and financial benefits from the federal government, in accordance with the Constitution,” Head of the Council Sabah Al-Bazoni said, according to Middle East Monitor.

That’s not the first address of Basra residents. In 2015, the Independent High Electoral Commission in Iraq agreed to hold a referendum to turn Basra into an autonomous region. At the time, head of the Iraqi government Nouri Al-Maliki refused to allow Basra to become an independent territory.

While the oil-rich Basra contributes the most income among Iraqi provinces, its residents suffer a lot from mismanagement, bad sanitation, high unemployment etc.

How will the Iraqi Government respond to these demands? Can this issue or its possible consequences affect the implementation of the new pipeline project?