10 August 2014

IRAQ’S POLITICAL UNCERTAINTY, SECURITY CRISIS AND ENERGY MARKETS – ANALYSIS


By Hasan Selim Ozertem

Political uncertainty in Iraq has the potential to adversely affect the country’s territorial integrity and its energy sector. Resultant of the political vacuum, the biggest risk facing Iraq’s expected oil production is the possibility of a delay in much needed decisions regarding the investment for the upcoming period.

After the invasion of Mosul by the Islamic State (formally known as the Islamic State of Iraq and Syria-ISIS), scenarios related to the division of Iraq came to the agenda once again. Presently, the most tangible scenario that could prevent such disintegration of the Iraqi state can be seen in the formation of a triadic entity consisting of Sunni, Shia and Kurdish regions incorporated in a lax federal system. Before ISIS’s assault on Mosul, this formulation was also endorsed by American Vice-President Joe Biden in 2006. However, for the establishment of such an entity it is necessary to restore the political balance which shifted after June 11 and for different groups to reach a consensus on a common roadmap.

Dominated by a chaotic atmosphere, it is still unclear what will result from the country’s efforts to form a government. While Sunni Arabs and the Kurds have uttered on multiple occasions that they do not look positively on a formula in which Nouri al-Maliki will remain the President, they bring about political obstruction by not participating in the work of the parliament. Maliki is insistent on refusing to take a step back in this process. In the meanwhile, he harshly accuses the Kurdish Regional Government of hosting ISIS and Ba’ath forces. Nonetheless, with the Kurds withdrawing their delegates from Baghdad they show a more unreserved attitude regarding their independence in the upcoming period. While Mesut Barzani, the President of the Iraqi Kurdish Regional Government, claimed to be preparing for two referenda regarding the status of Kirkuk and national independence in his speech to the members of parliament at the beginning of July in Erbil, he does not refrain from emphasizing that it is too late to withdraw from Kirkuk.

The Kurdish Peshmerga forces have gained limited control of certain regions like Mosul, Diyala and Tuzhurmatu which were cleared by the central governments’ forces in the process of pursuing ISIS’s movement to Baghdad from the north-west of the country. This development raises two issue. The first issue is that since becoming the primary armed force in their controlled regions, the Kurds are expanding the areas under their control and thus they now have to create a line of defense that is beyond their capacity. The second prominent issue is that even though the Kurds would prefer to remain under the Iraqi flag, the question remains whether they will revert to their old borders and how the energy resources within their newly controlled borders will be used. These two issues are important for both the country’s security dynamics and the political economy of the energy sector in the near future.
Ensuring Security in Iraq

Considering the operations carried out by forces loyal to the Iraqi central government, it is seen that they cannot robustly move on the North. The increase in violent clashes while facing off against resistance in Salahuddin and Diyala show that certain coordination problems have emerged. To illustrate, it is stated that while one civilian lost his life in the July 6 air strike on Tuzhurmatu, 6 Peshmerga died in a helicopter attack on June 14. Meanwhile in Baghdad, news continue to flow in about the new execution teams whose associations still remain murky and the severe weakening of security standards there.

From time to time, the Iraqi security forces, which are supported by American military advisors, try to create a line of defense in coordination with the Peshmerga in order to defend their existing positions, while on the other hand trying to repel ISIS through ground operations. In this environment, with minorities being severely affected, the demographic map of the region has been drawn anew through the mobilization of peoples in and out of ISIS-controlled regions. While 200 Turkmens lost their lives in Ninova and Kirkuk during the clashes, more than the 200,000 others have left their homes to seek refuge in more secure regions.

The Political Economy of Energy in Iraq

Although oil wells are of secondary importance to ISIS, in terms of energy, it is seen that Iraq’s largest oil refinery, Baiji, was located within an ISIS-controlled region. While ISIS has succeeded in gaining control of certain regions in the northern part of Iraq, this does not pose risks to the more important energy resources of the southern provinces. According to the International Energy Agency, the oil exports from the Persian Gulf that had declined to 2.42 million barrels per day in June, will rise to 2.6 million barrels in July. Particularly, it is stated that the investments in the BatıKurna-2 and Mecnun fields in Basra contributed to the expected increase of production capacity.

According to Ben Lando, the Bureau Chief of the Iraq Oil Report, it is possible to export 200,000 barrels per day from the fields controlled by the Kurdish Region. Yet, it has been stated that the Kurds have a total production capacity of 360,000 barrels. In addition, the Kurds, which have already captured two more oil fields in the region around Kirkuk as of July 11, have the potential to increasingly execute oil shipments.

It is argued that the motivation of Kurds who are quite determined to control the Kirkuk oil fields could be broken when faced with the risk of sabotage and damage to the infrastructure of the fields by the Central Government rather than ISIS. In an analysis by the Economist Intelligence Unit, it is pointed out that the motivation behind Baghdad’s inclination towards such an act would be to prevent a possible disposition that leans towards Kurdish independence. But recent march of Islamic State militants in the north shows that it is not possible to ignore the threat posed by the extremists to Erbil.

On the other hand, by trying to control a large geographical space, the Kurds are faced with a serious fuel shortage. The Kurdish Regional Government, which must consider the needs of its security forces in addition to the civil consumption in provinces such as Mosul and Kirkuk, are contemplating how to meet the increasing demand. That the shipment from the Beyci refinery was stopped makes this problem all the more pronounced. With the lines of traffic in front of gas stations throughout Erbil reminding us of the 1973 oil crisis, the Erbil government needs to import more oil due to its limited refining capacity. While Taner Yıldız, the Turkish Minister of Energy, says in his statements on the subject that Turkey is ready to do all that it can in this regard, he emphasizes the importance of logistical cooperation for traffic at the Habur Border Gate.

Besides all this, it is seen that ISIS, which controls some oil wells and energy infrastructure in Syria and Iraq, has turned into an actor that should not be ignored when it comes to oil trafficking. It is claimed that ISIS has a daily million dollar income as a result of this trafficking as it performs oil shipments to the Kurdish region and to Turkey’s border cities across the Syrian border.

ISIS moving farther into the country and the resulting power vacuum it leaves behind in central and northwest Iraq stands as the greatest threats to the continuance of Iraqi unity. In order to resolve the security problems that have been experienced up until now in the country, first and foremost, the establishment of a functioning political structure is required. Despite the Sunni Arab Salim al-Juburi being elected as President of the Council of Representatives in mid-July, the fact that a government which will ensure the unitary action of different groups has yet to be established negatively affects the success of the struggle. This uncertainty poses the risk of dashing the positive expectations that Iraq could provide a 40-45 percent increase in the world’s oil production in the near future. It has been stated that based on the available investment in infrastructure, a production capacity of 3-4 million barrels could soon be achieved in Iraq. However, considering the present risks, it is argued that the estimated 450 billion dollars in additional investment that it would take to augment the country’s capacity to reach an 8-10 million barrel production capacity is now under threat of becoming unrealistic. In this regard, ensuring the country’s territorial integrity is important both for the political future of the country and for the international oil markets.

This article was first published in Analist Monthly Journal, on August 2014.

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