Business
4:15 am
Wed February 19, 2014

Kurds Bypass Iraq Government, Build Oil Pipeline To Turkey

Originally published on Wed February 19, 2014 6:37 am

Transcript

STEVE INSKEEP, HOST:

Let's talk next about Iraq. Not the violence there, but the other thing the country is - for better or worse - quite famous for, oil. An ethnic group that controls a large slice of Iraq also control some of the oil, and this group, the Kurds, have found a way to export the oil while bypassing the rest of the country, including the central government - which is not happy.

Ben Lando is the editor-in-chief of the "Iraq Oil Report," and has been covering the story. Welcome to the program, sir.

BEN LANDO IRAQ OIL REPORT: Thank you very much.

INSKEEP: OK. So the Kurds in the north had the semiautonomous region for quite some time and they have been signing contracts with outside oil firms. How physically do they get out of their part of their country, it's a landlocked part of the country.

REPORT: Exactly. And there's a big gap between signing oil contracts and actually getting that oil to the markets. So what they've done is they've built this pipeline all within their own territory, and then they tied into the Iraq/Turkey pipeline. But there's two lines, a primary and a secondary line, they just kind of tapped into that secondary line - with the blessing of Turkey - and found their way to the mobile market. If they can sell the oil - that hasn't happened yet.

INSKEEP: And they can pump how many barrels of oil a day if they can find someone to buy it?

REPORT: Well, if they get it going, they can export, at least initially, up to 300,000 barrels a day. They don't have the fields ready to produce that just yet, but they throw open the taps, they could reach that within a year.

INSKEEP: Who wants to buy the oil?

REPORT: Well, everybody wants to buy the oil, but threats by the central government to basically sue any company that touches the oil, consider it as oil smuggled out of the country. No one has signed up to buy it yet. There's also not enough oil really to load up a full tanker yet either.

INSKEEP: OK. So you just mentioned the central government there. The Prime Minister is Nouri al-Maliki. Why would he be unhappy about the Kurds being able to sell Iraqi oil?

REPORT: Both sides say the constitution gives them the authority to set oil policy. The central government says the oil ministry has the right to set oil policy, to sign oil contracts, to sell oil; and the Kurdistan region does not have the right to do this themselves. The Kurds say no. The Kurdistan region itself can sign oil contracts, can export oil. What the central government has done though, is threaten to dock the Kurds' annual budget allocation to the extent where they would actually lose out billions of dollars - money that's necessary to run their autonomous region - if they were to go ahead and start exporting oil.

INSKEEP: Does the person who controls Iraq's oil control Iraq?

REPORT: Oil revenues make up something like 95 percent of the state income. So there's no one person controlling Iraq anymore because there is no dictator.

INSKEEP: Mm-hmm.

REPORT: If you have your hands on the sole source of revenue, that goes a long way to being able to control the country.

INSKEEP: So is Iraq's central government thinking that the Kurds, it could get their hands on this revenue stream, will spin farther and further out of the orbit of the central government?

REPORT: Not only that but they worry that other provinces who have oil potential will see this and say well, we're not getting what we want from the central government and were going to demand the same thing that the Kurds have.

INSKEEP: All this is happening at a time of escalating violence in Iraq. How do those two things play off against one another, the continuing violence and the competition for oil revenues?

REPORT: The job of running the Iraqi government has never been easy. The current government, who's been in power since 2006, feels it's up against the wall with terrorists and this is almost like a second front in tearing the country apart.

INSKEEP: In spite of all the conflict, is Iraq a major oil producer again?

REPORT: Absolutely. It's the second-largest exporter in OPEC, and growing. According to the International Energy Agency, something like 40 percent of global oil demand will be serviced by Iraqi oil.

INSKEEP: Ben Lando is the editor-in-chief of the Iraq Oil Report. He spoke with us at our member station WMUK in Kalamazoo, Michigan. Thanks very much.

REPORT: Thank you. Transcript provided by NPR, Copyright NPR.