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How Kurdistan’s Oil Achievements Serve Peace in The Region?

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Oil, the main element in establishing the country of Iraq during the division of the Ottoman Empire, is still the main economic factor that drives all politics in the country. Nationalizing the oil in 1972, made the state’s economy dependent upon oil revenues to fund Iraq’s budget. It also cemented the relationship of oil with the country’s economic growth. It paid for the cost of wars with the neighbors and strengthened the regimes. Now, at least Forty-five years since Iraq’s national oil company Establishment, we now see in 2017 that the oil net revenues as a percent of Gross Domestic Product of Iraq were about 37.78% and the share of oil revenue in federal annual budget stands at more than 88% in 2019!

After 2003, despite the fundamental changes to the Iraqi government, which included Democratic elections, and critical Republican Reform which have yet to be enacted, Oil may have regained its position as the hero, saving the government from a lack of economic muscle, specifically, industrial capacity, heavy and light Manufacturing infrastructure, as well as economic diversification. These factors and the devastation of several wars have created a weak economy. There has been a sharp rise of the public’s discontent recently as expectations of a growing economy, with prosperity for the citizens of Iraq have failed to materialize. These protests have shaken the elected government to its very foundation. Iraq’s reaction resulted in over 300 people having been killed.

Reasonably, the state’s oil production has received scrutiny and highest priority of the Iraqi federal government.

Recently, crude oil production has risen to 4.62 million barrels per day(bpd). The Kurdistan Regional Government (KRG) share of is about 450,000 bpd, equating to just less than 10% of total Crude Oil production.

The KRG started its own oil development plan in 2002, while Saddam Hussein was still ruling over Iraq.  Since the post-Saddam era, specifically in 2006, KRG, under authority granted under various provisions of the newly enacted Iraqi Federal Constitution, primarily articles of 111, 112, 114 & 115, established the necessary institutions to effectively manage oil production, distribution and sales, placed under the administration of the Ministry of Natural Resources (MNR), to follow up its ambitious plans for the region’s oil and gas sector. The regional Kurdistan Regional Government’s parliament approved the Ministry’s establishment in lawful accordance to the Constitution with the enactment of the Regional Oil and Gas Law in 2007. It is important to note the Federal Government at that time did not contest the actions of the KRG as it was under authority granted by the Newly enacted Constitution.

 International Oil Corporations(IOC’s) were invited to bid on the development of various oil blocks and the winning bidders were awarded contacts for oil exploration and Production. Hence, the KRG’s exclusive pipeline has been connected to the Turkey since 2014. This pipeline currently operates at a capacity of 700,000bpd. It is expected to be expanded and reached an increased capacity of one million bpd by 2021.

Control over Kurdistan’s oil and gas sector, most importantly, revenue from product sales is the primary point of contention between Baghdad and Erbil. The negotiations are over Kurdistan’s independent sale and export of crude oil that began in 2014, facilitated by completion of its major pipeline and the commencement of production, enabling KRG’s independent export.

Since 2014, Former Iraqi federal governments have tried multiple ways to deprived KRG from directing Kurdistan’s oil including curtailment of KRG’s share of the federal budget. Cash flows were cutoff even while KRG’s Peshmerga forces were engaged in the war against ISIS. Baghdad has used multiple methods to restrain the lawful sale and export of Crude oil that have included the following:

It filed formal complaints to federal and international courts; It threatened IOCs for working in Kurdistan; as well as making a claim in International Chamber of Commerce against Turkey for its cooperation with KRG to transport, storage and sale of Kurdistan’s oil in Turkey’s Port of Ceyhan.

While successes in Kurdistan’s oil industry grew, so too, did Baghdad challenges to that success.

Yet despite all the conflicts between Baghdad and Erbil, both followed their development plans seriously, to sufficiently empower themselves to assure their separate growth. Iraq created its target to reach 6million bpd, almost entirely dependent upon Basra and Kirkuk oil fields. The problem Baghdad faces is that while further development of the Basra oil fields require huge infrastructural development investments, Kirkuk’s fields, contain more than 9 billion barrels of oil, that can reach a record production of 1million bpd rapidly, if export solutions are found. Kirkuk oil fields and the historical and emblematic, Baba Gurgur. These oil fields were first developed in Iraq by Turkish Petroleum Company, directed mainly by Anglo-Persian Oil Company, British Petroleum’s(bp) predecessor. The development license of the Kirkuk oil fields was granted to bp by Iraqi Ministry of Oil, in 2009, despite Kirkuk being one of “the disputed areas” with a majority Kurdish Population, addressed in Article 140 of the Iraqi Federal Constitution “to [be] determine[by] their citizens will” to join Kurdistan Regional Government or to remain within Iraq.

However, bp operations in Kirkuk had to be suspended, after Iraqi forces withdrew in 2014 instead of fighting against ISIS forces’ threatens against this region, when Kurdish Peshmerga saved the area and came it under civilian control. But after October 16, 2017, when Iraqi forces prevailed Kirkuk as a response to Kurdistan’s Independence Referendum, bp immediately returned Kirkuk to continue her contract, ended permanently in January, 2020, after continuing the instability and lack of security in absence of Kurdish forces in Kirkuk, as well as in lack hopes to have robust solution for exporting the product, caused of weak relationship between bp and KRG, despite Kurdistan’s government welcomed to export some part of Kirkuk product through her export pipeline.

Yet, the 2018 elections in both of Iraq and KRG created new chances to bring the governments closer. The last Iraqi government, which would be replaced soon by cabinet of new designated P.M’s, KRG have come together to calm the situation since last year. It was effectively confirmed by the new KRG P.M, H.E “Masrour Barzani”, visiting Baghdad after he was designated by Kurdistan Parliament and wrote about his plans in the Washington Post, “I will also take steps to reset the relationship between Irbiland Baghdad, which has remained fraught for the past 16 years”…. and “It is time for a more constructive and stable partnership with Baghdad.” (Washington post, July 18, 2019)

However, Erbil continues to respect the spirit of cooperation with Baghdad, despite current demonstrations and unclear future of the central government.

KRG had determined that it would support Iraq’s oil production plan by exporting more than 100,000 bpd of Kirkuk’s oil via Kurdistan’s pipeline since last July. Also, Kurdistan’s government has taken further steps to foster good will with Baghdad to satisfy central government’s condition regarding Kurdistan’s share in the 2020 federal budget.

Kurdistan’s Oil infrastructure and production achievements, including its pipeline, were once fiercely objected to by previous Iraqi federal governments as illegal, and its own production capabilities, even to the point of being under the Iraqi central government’s control. Yet today Kurdistan’s pipeline infrastructure and oil production that did not even exist in the past are now used legitimately by Kurdistan government in order to bring more economical development and welfare to the Kurdistan’s citizens. With this recent symbiotic relations with Baghdad could possibly improve permanently, and with the cooperation of Baghdad the rights of the KRG would be observed and honored designated in the federal constitution.

 Yet we know that only a strong Kurdistan through the will of the people will truly secure Kurdistan’s rights, granted to KRG under the Iraqi federal Constitution and must be respected. Peace and security for Kurdistan will help improve stability and security for Iraq, and in the bigger scope for the region, hoped to be continued in the long run, especially by the future federal government of Iraq and parliament.

Shahriar Sheikhlar is an independent energy security and strategic development analyst, in Erbil, Kurdistan Region of Iraq. Mr. Sheikhlar, holds postgraduate in Management, Strategy. He is giving advices and services to some local and international think tanks and news agencies.

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Price Cap on Russian Oil: The Mechanism and Its Consequences

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G7 countries are working hard to coordinate a sanctions regime to cap prices on Russian oil and oil products. The United States is already drafting a mechanism for applying these sanctions, which its allies and partners will use as a guideline. The new sanctions in the form of legal arrangements are expected to be formalised very soon. How will this mechanism work, and what consequences can this lead to?

An unprecedented range of economic sanctions has been used against Russia since the beginning of the special military operation in Ukraine in February 2022. Their primary aim was to deal the largest possible economic damage to force Moscow to revise its policy and to undermine its resources provision. Since energy exports are extremely important for funding the Russian economy, sanctions against its oil and gas sector were more than just predictable. However, the United States, the EU and other initiators had to act cautiously, because Russia is a major player on the global market. US restrictions on the export of Iranian oil had little impact on the global market, whereas blocking sanctions against Russian oil companies could lead to uncontrollable price hikes. This could accelerate inflation, which was growing fast on the back of COVID-19 and other factors.

Nevertheless, the sanctions noose on the oil sector was tightening. Some sectoral sanctions have been applied since 2014, such as restrictions on loans and on the supply of products, services, technologies and investment in the Arctic shelf oil projects. Blocking sanctions were adopted against a number of co-owners, owners and top managers in the fuel and energy sector. In March 2022, Washington prohibited the import of Russian energy resources to the United States. Canada acted likewise. The EU started with banning Russian coal imports and later spread the ban, with a few exceptions, to oil and oil products. The bans are to come into force on December 5, 2022, and February 5, 2023, respectively. The UK plans to stop the import of Russian oil this year. Overall, Western countries are working to gradually banish Russian oil and oil products from their markets.

However, Moscow has quickly redirected its deliveries to Asian markets, where Western countries cannot easily impose similar restrictions, especially since Russian companies are selling their products with large discounts. The idea of a price cap has been proposed to be able to influence Russian oil prices outside Western countries.

The essence of the proposed mechanism is very simple. The United States, G7 and any other countries that join the coalition will legally prohibit the provision of services which enable maritime transportation of Russian-origin crude oil and petroleum products that are purchased above the price cap. The US Treasury has issued a Preliminary Guidance to explain the essence of the forthcoming bans, to be formalised in a determination pursuant to Executive Order 14071 of April 6, 2022. Section 1 (ii) of the executive order empowers the US Treasury and the Department of State to prohibit the export or re-export of “any category of services” to Russia. The upcoming Determination will explain the ban for American parties to provide services which enable the transportation of Russian-origin crude oil and petroleum products above the price cap. The US administration plans to enforce the ban on oil on December 5, 2022, and the ban on oil products on February 5, 2023, simultaneously with the EU bans on Russian oil imports.

But what is the exact meaning of the phrase “services which enable maritime transportation”? The US will most likely offer an extended interpretation. In other words, such services will include transportation, related financial transactions, insurance, bunkering, port maintenance and the like. This would allow Washington to influence a broad range of service providers outside the United States. For example, the US administration might consider dollar-denominated transactions on oil transportation to fall under US jurisdiction, so that very many players outside the US will face fines or prosecution. Punishment for avoiding the price cap, as well as for using deceptive shipping practices, have been set out in the new Guidance.

It is another matter how strictly the other coalition countries will implement this guidance and how large this coalition can be. The level of coordination within the initiator countries will likely remain very high, which means that the allied countries will do this in accordance with their national legislations. The coalition will include the countries that have already adopted sanctions against Russia.

The biggest question is whether the countries that have not adopted such sanctions, including Russia-friendly countries, can be convinced to join the coalition. The answer is most probably negative, but this will not settle the problem. Despite the official position of the friendly countries, their businesses could surrender to the US demand to avoid the risk of persecution.

The G7 statement and the new Guidance of the US Treasury imply that the sanctions are being imposed out of concern for the international community rather than solely for the purpose of punishing Russia. They say that the price cap is designed to stop the growth of oil prices that have been artificially inflated by the conflict in Ukraine. However, this “concern” can lead to unpredictable consequences.

To begin with, the latest attempt at the political mandating of prices will increase uncertainty, which will further drive the prices up. Prices can grow on expectations of problems with signing deals on the delivery of Russian oil and oil products over excessive compliance, which will lead to temporary shortages. Another problem is that the other oil producers will have to lower prices as well. They will not like this.

In fact, the sellers’ market is being changed into the buyers’ market by artificial political methods rather than for economic reasons.

And lastly, Russia is being forced to become the leader of dumping. Demand for its oil could be higher than for the products of other suppliers, and Moscow can make up for its profit shortfall by increasing deliveries. If the Western countries that prohibit the import of Russian oil and oil products buy other suppliers’ oil at higher prices while Asian countries continue to buy Russian products, this will artificially increase the competitiveness of Asian economies.

It is time for Russia to start thinking about adjusting to the Western restrictions, including by developing its own tanker fleet and abandoning the US dollar in oil deals. The latter is the prevalent task of Russia’s foreign trade in the new political conditions.

From our partner RIAC

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Absolute Proof that EU Leaders Are Responsible for Europe’s Soaring Fuel-Prices

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A BusinissInsider news-report on the morning of September 7th headlined “Putin says Russia will restart Nord Stream 1 gas flows ‘tomorrow’ if it gets turbines, and blames sanctions for the shutdown” and opened with:

Russian President Vladimir Putin said Wednesday that Gazprom could restart gas flows to Europe via the key Nord Stream 1 pipeline tomorrow, if it gets the turbines needed. He blamed Germany and Western sanctions for the indefinite halt in operations for the pipeline, according to media reports from his speech at the Eastern Economic Forum. At the same time, he said pressure from the US was behind the holdup in launching another pipeline, Nord Stream 2.

Putin was telling the EU’s leaders that what has been forcing gas-prices in Europe up 300% since Russia’s February 24th invasion of Ukraine isn’t Russia’s invasion of Ukraine (such as they allege) but instead the U.S.-EU-UK economic sanctions against Russia which have caused all U.S.-and-allied — including all EU — nations to terminate imports of fuels from Russia. He was saying that Russia will turn on the pipelines into the EU as soon as EU leaders turn off their sanctions that prohibit their businesses and consumers from buying it.

The ball is now in their court. Let’s see what they do with it. Have they been lying to allege that Russia’s invasion of Ukraine caused this 300% gas-price rise? If so, then Putin has said that the moment they stop lying and start to allow the gas to flow again from Russia, that gas will flow again from Russia and those prices will consequently plunge back down again.

If, however, they have been telling the truth (though it’s hard to see how Russia’s invasion of Ukraine on February 24th could even possibly have forced up the prices in the EU of all fuels from Russia), then the ball will immediately be in Putin’s court, for him promptly to get the flows of Russian fuels into Europe restored to what they had been prior to the EU’s sanctions that were imposed in the wake of that invasion.

Because it’s hard to see how Russia’s invasion of Ukraine on February 24th could even possibly have forced up the prices in the EU of all fuels from Russia, the headline here is based upon the very reasonable expectation: that the result of Putin’s September 7th challenge to the EU’s leaders will be that they are proven to have been lying when they have blamed these price-rises on him, instead of on themselves.

In other words: On September 7th, Putin laid down the gauntlet to EU leaders, regarding whom is to blame for Europe’s now-soaring energy-prices, and for the consequences thereof. That challenge to them tests whom has been telling the truth about this matter, and whom has been lying about it. It is that test, regardless of whether news-reports about his statement (other than this one), report it as testing whom the liars, and whom the truth-tellers, about this matter, have been. This is a big tree that is falling in the news-forest, and that tree is falling, regardless of whether or not (or the extent to which) it is being reported to the public. The test is a fact — an important fact — even if it won’t be reported (other than here). However, something else will be even more important: what the result of this test will turn out to be. And then the test for the news-media will be: will they report that result? Will they report the finding? Because there certainly will be a finding, from this test. And it certainly will be an important one.

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Coal Diplomacy: Could We Be Free from the Climate Crisis?

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One of the things that is perplexing at the moment is that there is no clarity about how life will be lived in the coming year from an economic standpoint. In 2023, both the Indonesian finance minister and the Indonesian president said that “the world is dark.” Uncertainty regarding many topics, particularly economic concerns, is referred to be “dark.” Recession that affected several of the world’s major economies. The biggest issues now are energy shortage and food ingredient scarcity. Politics is no longer focused on how to achieve power, as well as the world’s attention and authority, but on how to sustain tomorrow’s life and escape the perils of hunger and cold.

Since the implementation of Western sanctions on Russia, not only has the political game grown more attractive in terms of military and economics, but it has also had an influence on the economy. Because of Russia’s high price for oil and gas, as well as the growing issue of energy shortages, various European nations have taken the initiative to generate electricity by burning coal. This has recently received a lot of attention in the media. The transfer of energy sources is plainly the polar opposite of the world’s current commitment to reduce emissions and environmental impacts. In the face of global uncertainty, the availability of coal as an energy source will assist emerging nations with coal reserves, such as Indonesia. However, when the time period and amount of coal burned are considered, this definitely accelerates the environmental impact. According to the BP Statistical Review of World Energy 2021 report, worldwide coal consumption in 2020 was 151.42 exajoules. This figure fell by 4.2% from the previous year, when it stood at 157.64 exajoules. China is the largest consumer, accounting for 54.3% of total worldwide spending, followed by the United States, India, and Japan.

How Coal affects the environment

According to the Encyclopedia Britannica (2015), coal is derived from animal and plant fossils that perished and were buried millions of years ago; coal is currently the world’s greatest fossil fuel when compared to oil. necessitates a number of operations and a rather wide space It generates a lot of pollution and environmental harm from coal mining to processing to consumption to the ultimate cycle of use. The following is an example of a coal processing line:

First, when coal is discovered, people and certain groups will plan to mine it. The plan is then carried out by constructing a mine. At this early stage Coal mines will have a negative influence on the ecosystem, beginning with changes in the terrain, which will reduce soil fertility. Biodiversity is under peril.

Second, a variety of chemical reactions occur in nature during coal processing procedures. When fossil fuels are burned to generate energy, the carbon in the fuel interacts with oxygen to make CO2 gas, the majority of which is emitted into the atmosphere. Not only does coal combustion emit CO2, but it also emits methane into the atmosphere. As a greenhouse gas, methane is twenty times more powerful than carbon dioxide. Not only does coal combustion emit CO2 and methane, but it also emits sulfur in the form of sulfur dioxide (SO2) gas.  If these three chemical compounds are released into nature, they have a severe influence on the environment and humans, producing soil degradation, air pollution, and the sulfur content released is also particularly toxic for water. Although there is a new phrase and breakthrough “Clean coal,” according to Michael Economides, professor of chemical engineering at the University of Houston, Texas), it is highly improbable that clean coal can be created by “Carbon Capture and Storage (CCS).”

Third, following a series of procedures, the mining and burning of coal will also leave visible traces. Past mining locations’ created craters and changing landscapes, of course, damage the ecology, and former excavations frequently cost life.

 Indonesia and coal

Indonesia is one of the countries that has profited from the present global energy constraint. The Center for Mineral, Coal, and Geothermal Resources reported that Indonesia’s coal reserves were at 31.7 billion tons as of January 19, 2022. Indonesia not only utilizes coal for internal purposes, but also exports it to other nations in order to gain foreign currency. When coal prices rise, it contributes to state income, but these gains are only transitory since the government gives additional relief to coal service employees through power subsidies and compensation.

According to investor.id data source Carbon Brief, the Indonesian government offers power subsidies and compensation with a budget of Rp. 127.9 trillion. This sum is higher than the previous year’s total of Rp. 74.4 trillion. The government provides subsidies and incentives so that PLN may continue to acquire coal from the firm while keeping power prices stable.  Owners of coal mining enterprises will gain the most during this period of energy shortage. In January-March 2022, one of the coal mines had a 457.6% rise in net profit. Until June 2022, Indonesia’s coal output has achieved 283.57 million tons, or around 42.77% of the target for 2022, which was 633 million tons. Meanwhile, national coal sales through June 2022, which included both exports and domestic sales, were 175.15 million tons.

Climate Commitment Challenge

It is quite difficult to retain environmental commitment in these times. On the one hand, humans are attempting and committed to keeping the environment stable by reducing the greenhouse effect, which can harm the ozone layer, but the current situation has not provided an opportunity to obtain energy that is cleaner and environmentally friendly, and can be produced in large quantities quickly, other than rocks and coals.  Coal processing and utilization as an energy source has been known for over a century, and its influence has been felt in recent decades. However, the usage of coal cannot be minimized or eliminated at this time. Europe’s Germany, Poland, and even India in Asia ordered coal from Indonesia to meet their national energy demands. This has occurred since Russia’s sanctions were implemented.

This circumstance demonstrates how the political system affects the food chain. With the increased usage of coal in many regions of the world, it is possible that the Paris Agreement and the G20 statement, as well as other environmental and climate-related pledges, will be revisited. However, increased worldwide coal usage will hasten the depletion of global coal stockpiles. Keep in mind that nature takes thousands of years to generate coal, but human progress in this century is so rapid.

Conclusion

The human task of sustaining the appropriateness of a place to live in the face of global instability will never diminish. These obstacles might arise from the environment in which humans live or from outside sources such as governmental policy, commerce, and conflict.  The recent increase in the use of coal is a short-term effort for humans to survive and carry out their activities, but in the long run, human dependence on coal must be considered, given that humans’ ability to grow and reproduce faster than nature’s ability to produce coal for humans, and even if coal is still relied on, it will accelerate environmental pollution, which then affects weather and climate. It is vital to review how the commitment to environmental protection has been pursued in both local and international obligations.

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