BP’s new venture in Iraq could be a turning point for the West in the Middle East

Oil companies occupy a unique position at the intersection of the global economy, politics and security. Part of the reason for this is that energy is a key determinant of every country’s financial future and therefore of its political maneuvers at home and abroad. Another part is that oil company ventures in foreign countries are enormous and multi-layered operations that involve cultivating relationships at the highest levels of a host nation’s government, industry and society. The bottom line is that oil companies have the legal right to protect their assets on the ground in a foreign country by any means they deem necessary, provided the host nation agrees. The West has long led the way in building and cementing international relations through such oil ventures, particularly in the Middle East, as discussed in depth in my latest book on the new world oil market order. Later, several military and political mistakes, particularly in Iraq, China and Russia, filled the power vacuum left by the decline of Western influence in the region. However, in April last year, a $27 billion four-point deal between France’s TotalEnergies and the Federal Government of Iraq (FGI) was finally ratified in Baghdad. And just over a week ago, Britain’s BP signed a preliminary agreement to rehabilitate and develop four fields in the extremely oil-rich Kirkuk region in Iraq’s politically sensitive northern region.

The Kirkuk area is perhaps the most charged point of political contention between the FGI centered in the southern Iraqi capital of Baghdad and the semi-autonomous Kurdistan Region (KRG) government based in Erbil in northern Iraq. According to several credible historical sources, the Kurds settled in Kirkuk long before any other ethnic groups, and the place was referred to by various Kurdish leaders as the “Jerusalem of Kurdistan”. As such, the KRG has long claimed implicit jurisdiction over the city and region of Kirkuk, over which it exercised effective administrative control from 2014 to 2017. During this period, the KRG’s fearsome peshmerga army protected Kirkuk from the Islamic State (IS) then. ). In return for the force’s exceptional success in dealing with IS in much of Iraq, Washington quietly assured the KRG that the US would support Kurdish aspirations for full independence from Iraq once the IS threat was passed. Consequently, on 25 September 2017, a vote on Kurdish independence from the rest of Iraq took place in northern Iraq – although until then it had not been reformulated as a legally binding vote, but rather as a preliminary indicative one – and 92% of the 3.3 million eligible voters voted in favor of forming a new independent Kurdish country north of the rest of Iraq. At that moment, all hell broke loose.

For key Iraqi regional sponsor Iran and for Turkey and Syria, granting independence to the quasi-separate Kurdish state of northern Iraq was likely to bring with it a huge increase in similar demands from their own sizable Kurdish populations. In Iran they represented about 9% of its total population, in Syria about 10% and in Turkey almost 18%. Immediately after the Kurdish independence referendum was announced, Major General Yahya Rahim Safavi, a top military adviser to Iran’s Supreme Leader Ali Khamenei, called on four neighboring countries (Iran, Iraq, Syria and Turkey) to block land borders with Iraqis. Kurdish region. Iran was – and remains – determined to protect its role as the key foreign player throughout Iraq. It continues to hold enormous influence over the Shia Muslim groups that have led or held security and governance positions in Iraq since the US-led invasion that toppled Saddam Hussein in 2003. In broader geopolitical terms, Iran has viewed the prospect of a independent Kurdistan. with horror as it also threatened its strategy of deploying a Shiite-dominated sphere of influence in the Middle East, led by Tehran, to overcome the power base in US-backed Saudi Arabia, which had been the key force for the latter. decades. In this context, Iran’s fears were not helped when then-President Massoud Barzani declared in late 2017 that Iraq should be divided into separate Shia, Sunni and Kurdish entities to prevent further sectarian bloodshed.

Iraq’s then-prime minister Haider al-Abadi, meanwhile, began by calling the vote “unconstitutional.” He added that on this basis, the FGI will take control of the official border crossing points connecting the Kurdish region with neighboring countries and restrict international flights to and from Erbil and Sulaymaniyah airports. In addition, the Iraqi parliament was mandated by al-Abadi to send troops to the disputed Kirkuk region and asked “neighboring countries and countries” to stop buying crude oil directly from Kurdistan, just to deal with the FGI in Baghdad. . This was based on earlier statements by al-Abadi that he had ordered the Oil Ministry to mobilize all its legal resources to prevent all ships from unloading all KRG crude oil exports to any destination in the future after several incidents in which KRG Oil had been loaded into tankers for export. This was the genesis of the ongoing impasse between the FGI and the KRG over independent oil sales from the semi-autonomous region, which has now led to well-advanced efforts to end all independence for Iraqi Kurdistan and simply dump it into the rest of Iraq.

It remains to be seen exactly what the presence of TotalEnergies and BP will mean for Iraqi Kurdistan. On the one hand, it might concern the ultra-historically aware Kurds that the forerunners of both BP and TotalEnergies – Anglo-Persian Oil Company and Compagnie Française des Pétroles respectively – were stakeholders significant (23.75 percent each) in Turkey. Petroleum Company Consortium that dominated oil exploration and production in Iraq from 1925 to 1961. On the other hand, however, the two firms had long been part of a small group of large oil and gas firms that were at the forefront of Western efforts to secure oil and gas flows following Russia’s invasion of Ukraine in February 2022. This was despite enormous competition from Chinese and Russian firms whose focus was to block as much of the these crucial energy flows at the expense of the West, as global oil and gas supply is a zero-sum game. Also, the West has long supported the quasi-independence status of Iraqi Kurdistan, so it is possible that it will seek to reassert a balance between the FGI and the KRG over time, with Kirkuk being an example of how a new version a 2014 oil agreement for budget payments could work more efficiently.

The UK and French firms’ collaborative history may also lead to synergies down the line for their Iraqi projects. Most notable, perhaps, is TotalEnergies’ work to finally break ground on the Crucial Seawater Supply Project (CSSP), the first phase of the upgraded project expected to be operational in 2028. The CSSP involves taking five million barrels per day seawater from Persian. The initial gulf, which will then be transported via pipelines to oil production facilities in Basra, Missan and DhiQar provinces, in order to maintain pressure in their key oil reservoirs to optimize the longevity and production of their fields. Both of Iraq’s long-standing fields – Kirkuk and Rumaila, the former which began production in the 1920s and the latter in the 1950s, both producing about 80 percent of the country’s cumulative oil production – require a major water injection. According to industry figures, Kirkuk reservoir pressure has dropped significantly after producing only about 5% of existing oil (OIP). Meanwhile, Rumaila produced more than 25% of OIP before water injection was required (as its main formation connects to a large groundwater source).

Cooperation between BP and TotalEnergies in this regard could significantly boost Iraq’s oil production, both in the south and in the north. Officially, according to the Energy Information Administration, Iraq has proven crude oil reserves, very conservatively estimated at 145 billion barrels. Unofficially, it is extremely likely to hold much more oil than this, as analyzed in its entirety my latest book on the new world oil market order. In October 2010, Iraq’s Ministry of Oil raised its own official figure for the country’s proven reserves, but at the same time said Iraq’s undiscovered resources amounted to about 215 billion barrels. Even this figure, however, did not include oil from the Iraqi Kurdistan region. As separately pointed out by the International Energy Agency, the level of ultimately recoverable resources in the whole of Iraq (including the Kurdistan region) is likely to be about 246 billion barrels (liquids of crude oil and natural gas).

By Simon Watkins for Oilprice.com

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