How ISIL Changed the Oil Map of Iraq

Iraq

The last three years dramatically reshaped the oil map in Iraq, OPEC’s second-largest producer. The dust from the military campaign against the Islamic State of Iraq and the Levant (ISIL, also known as ISIS) will take weeks if not months to settle, and the Iraqi government’s grip on disputed and oil-rich Kirkuk, which the Iraqi Kurds recently vacated, remains infirm.

But when it comes to oil, it is clear that the conflict has left some stakeholders better off than others.

The ISIL factor

The Baghdad government got off to a very poor start. Even before ISIL stole the headlines with its dramatic conquest of Mosul in June 2014, the “terror” group’s operations were damaging Iraq’s oil industry. More than three months earlier, ISIL attacks had brought oil exports through the Iraq-Turkey Pipeline through which Iraq used to export the bulk of Kirkuk’s 550,000 barrels per day (bpd) production, to a complete halt.

Repair crews, afraid to reach the sites of leaks caused by explosives – even with army escorts – dubbed a stretch of the pipeline’s path Tora Bora, after the infamous stronghold of the Taliban and al-Qaeda in Afghanistan.

Iraq’s losses mounted when ISIL took over Mosul. ISIL fighters captured Ajil and Himrin oilfields in Salaheddin province and Qayyarah and three others in Nineveh province. The production potential of these fields, 72,000 bpd under ideal conditions, was rather minuscule from Baghdad’s perspective – the country at that time was exporting nearly 2.6 million bpd.

But the real damage was in enabling ISIL to finance its war machine. It was able to generate an estimated $45 million a month selling the oil from these fields, and others in Syria, through a labyrinth of oil refining and smuggling operations. The windfall allowed it, for a while, to pay its fighters generously by local standards and keep its murderous campaign going for three long years.

Indirectly, the impact was more profound, more geopolitically significant. In the confusion following the fall of Mosul, Kurdish Peshmerga belonging to the Kurdistan Regional Government (KRG) took over the prized Kirkuk fields. The largest of the fields, Avana and Bai Hassan, were swiftly integrated into the KRG’s oil production system, while others continued to be operated by the Baghdad-controlled North Oil Company.

Baghdad and the KRG made a short-lived deal in December 2014 under which Baghdad would pay the KRG 17 percent of the national budget in exchange for 550,000 bpd (250,000 bpd from fields inside Kurdistan proper, and 300,000 bpd from Kirkuk fields under KRG control). The deal faltered within months as both sides accused each other of falling short of meeting their commitments under it.

Read full article by Omar Al-Nidawi on Aljazeera, December 1, 2017.