The Kurdish referendum on September 25 for secession from Iraq — and Masoud Barzani’s insistence on it — has backfired on the region and the oil sector in an unprecedented way. While crude oil prices are still in the predicted range of $50-$60 (Dh184-Dh220) a barrel for the year, Brent has moved from $57.27 On October 23 to $62.07 a barrel to November 3.

The most prominent reason for this is the decline in exports from northern Iraq from a September average of 600,000 barrels a day to 419,000 barrels a day in October.

The flow is even less now as Baghdad ordered its Northern Oil Company to stop exports via the KRG-controlled pipeline to Turkey.

The military operation that freed Kirkuk from KRG’s hold also reclaimed all the oilfields that were occupied by the Peshmerga since mid-2014, including Bai Hassan and Khabaz oilfields and Avana Dome of the Kirkuk oilfield. These were producing 280,000 barrels a day just before they were reclaimed. The same goes for the small Mosul fields of Ain Zala, Butma and Sufaiya, where combined production was around 15,000 barrels a day.

All the above Kirkuk and Mosul fields remain shut for now.

A number of options

The remainder of the Kirkuk complex oil production of about 150,000 barrels is being sent to power plants and local refineries in Kirkuk, Erbil and Sulaimaniya and the remaining 30,000 barrels a day is sent temporarily for storage. The Ministry of Oil is considering a number of options to send more Kirkuk crude to the Daura refinery in Baghdad, either by truck or by repairing the old pipeline system.

Another part of the Kirkuk oil complex still controlled by the Peshmerga is the Khurmala Dome of the proper Kirkuk oilfield, which was taken by the KRG in 2007 on the flimsy pretext that it is situated in Arbil and not in the Kirkuk governorate. At that time, it was destined to be further developed by NOC where all the engineering was completed and equipment for the purpose arrived on site.

But it was confiscated by the KRG without serious opposition from Baghdad at the time. The current Khurmala production is reported to be 105,000 barrels a day, and if the declared intention of Baghdad is to re-establish control based on the 2003 borders, then Khurmala is a delayed potential target.

The “curse of geology” is also catching up with the KRG. The one-time crown jewel of the fields under its control — Taq Taq — has suffered a reduction in reserve estimates, from 683 million barrels in 2015 to 172 million barrels in February 2016 and now to just 59 million barrels. Its production fell from 145,000 barrels a day in April 2015 to just about 14,000 barrels now.

At the same time, dimmed prospects in 19 exploration blocks forced many international oil companies to pull out especially after the decline in oil prices as of the second-half of 2014. Recently Chevron said it was suspending operations in the Kurdish area to monitor development. All this calls into question the KRG’s claim of having 45 billion barrels of reserves.

Border crossings

Companies would be seriously mindful of Baghdad’s intentions to delegitimize all oil dealings with the KRG unless agreed by the Ministry of Oil. But when all this is unfolding, exports through the pipeline to the Turkish port of Ceyhan is still ongoing. Although the Turkish government said it will only deal with Baghdad with respect to oil exports, reports suggest that the KRG is still in control of the sales.

However, the government in Baghdad is adamant that it will control all border crossings and pipelines crossing international borders. And, therefore, it is not important who controls the exports before Baghdad’s wrest control of the Fishkhabour border, crossing where $10 billion of trade crosses every year. So is the valve station that controls the flow of oil to Turkey.

The situation should be carefully watched as both sides dig in. As “Foreign Policy” reported: the “referendum on independence has made an already bad situation for the Kurds far worse. Instead of enhancing the Kurds’ political leverage and autonomy, it has squandered international goodwill toward them, antagonised Baghdad and its neighbours, and deepened economic risk and societal fissures.”

While Barzani and his followers were arrogantly claiming that they have expanded KRG territory by 40 per cent through their expropriation of the so called “disputed territories”, they have to seriously think now how much control will remain for them on KRG proper.

The Iraqi government is also to blame for towing to Barzani and Kurdish politicians for the last 14 years, buying their political allegiance at the expense of all Iraqis, including the Kurds.

The writer is former head of the Energy Studies Department at the Opec Secretariat in Vienna.