TWO and a half years after Obama fulfilled a campaign pledge and pulled last troops out of Iraq, the United States is back into the country, targeting the Islamic State militants, creating in its wake opportunities for peshmerga, the Kurdish regional government's armed wing, to retake the initiative on the battle ground.
But why bomb Iraq now? A debate is raging. And the oil connection to the entire specter is too evident. John B. Judis, the veteran editor of the New Republic, insists oil “lies near the center of American motives for intervention.”
Columbia School of Journalism Dean Steve Coll observed in the New Yorker that “Obama's defense of Erbil, the capital of the semi-autonomous Kurdish region is effectively the defense of an undeclared Kurdish oil state.” It's no secret that Iraqi Kurdistan has an abundance of oil reserves, nor that a number of US oil companies are busy exploring there. Chevron has three “production sharing contracts” with the Kurdish government, covering a combined 444,000 acres, north of Erbil, where it's in the early testing and drilling stage.
Erbil, the center of US military action, is thus important. The city of 1.5 million people is largely viewed as the administrative center for the Kurdish regional oil industry and a quarter of Iraq's oil production nationally. The oil reserves are so large in this region that Kurds often claim that, if they were to break off from Iraq and establish their own country, the new nation would stand as the ninth largest oil producer in the world.
The region has two large oil fields in particular — Taq Taq and Tawke. Kirkuk also sits next to a “supergiant” oil field containing an estimated 10 billion barrels of oil.
Crude revenues are a significant factor in Iraq's never-ending political impasses. Iraq is currently the world's seventh-largest oil producer, churning out some 3.3 million barrels per day in April. By June of this year, Iraqi Kurdistan was producing 360,000 barrels per day — about 10 percent of Iraq's production (and about 0.5 percent of the world's supply).
And much more was expected. In a 2009 State Department cable leaked by Wikileaks, one foreign firm said Kurdistan “has the potential to be a world-class hydrocarbon region.”
IS was threatening this key producer. And the US could not have afforded to destablize it - for more than one reasons. Erbil is an oil boomtown full of Western companies like Chevron and ExxonMobil. American companies today are actively engaged in oil and gas, security and construction sectors. Washington could not have overlooked all this. Obama's advisers explained to reporters that Erbil holds an American consulate, and that “thousands” of Americans live there. The city has to be defended, they insisted, lest ISIS overrun it and threaten American lives.
Besides ExxonMobil and Chevron, many oil and gas firms large and small companies are drilling in Kurdistan under contracts compensating the companies for their political risk-taking with unusually favorable terms.
With those oil giants have come the usual contractors, the oilfield service companies, the accountants, the construction firms, the trucking firms, and, at the bottom of the economic chain, diverse entrepreneurs digging for a score. And British oil companies are not lagging much behind.
In 2010, an ExxonMobil affiliate signed a deal with South Oil to redevelop the West Qurna I field in the southern part of the country. The project includes drilling new wells, working on existing wells, and optimizing existing facilities, according to its SEC filings. The company is also pursuing exploration and production in the Kurdistan region of Iraq, in the northern part of the country. BP, meanwhile, signed a service contract with South Oil in 2009 for work in the Rumaila field in Southern Iraq.
The investments of these companies were in danger due to IS advancing into the oil belt. As per press reports, Exxon Mobil had to evacuate from Iraq (read Kurdistan) amid growing instability due to militants. The company has undertaken a “major evacuation” of its staff, Reuters reported as early as June, citing comments from Dhiya Jaffar, head of Iraq's state-run South Oil Co. Jaffar also said then BP too had evacuated about 20 percent of its staff in Iraq. US oil producer Hess Corp has also suspended oil-drilling operations in Iraqi Kurdistan and started to evacuate non-essential staff amid spreading violence in the region, its minority partner Petroceltic said.
“It has been decided, as a precautionary measure, to temporarily secure and suspend operations, including the drilling of Shireen-1 exploration well in the Dinarta licence,” Petroceltic said in a statement. Hess operates Iraqi Kurdistan's Dinarta and Shakrok fields, in which Petroceltic owns a 16 percent stake and the Kurdistan regional government has a 20 percent share. The partners started drilling a first well, Shireen-1, on the Dinarta block in June and had expected exploration work to last five months. Canada-listed Oryx Petroleum too had to suspend its operations in the country.
The decision to suspend operations follows announcements on evacuations and interruptions of production from other oil companies active in the region, including Afren and Taqa, as violence spread with the advance of Islamic State militants.
Washington hence could not have afforded to abandon Erbil at this stage. As John B. Judis writing for the New Republic says: If the Islamic State were to take over Erbil, they would endanger Iraq's oil production and, by extension, global access to oil. Prices would surge at a time when Europe, which buys oil from Iraq, has still not escaped the global recession.”
And interestingly the American action in and around Erbil caused crude markets to stabilize. In normal circumstances, a military action in oil-rich region causes markets to spike. Not this time. “In essence we find US air strikes more bearish than bullish for oil as the act finally draws a line for IS and reinforces both the stability in south Iraq and in Kurdistan,” Oliver Jakob, a Swiss oil analyst, told Reuters.
History is full of oil wars. Let's be forthright, Mr. Obama. Another one has just been added to the list!
