Spotlight on... Rosneft in Kurdistan
Russia’s largest state-owned energy firm Rosneft has not shied away from opportunity in the face of political risk, reaffirming its commitment to investments in Venezuela as well as Kurdistan in the past year. The company has asserted its position in the complex geopolitical landscape of the Kurdistan Region of Iraq (KRI) as a vital mediator, actor and stakeholder since formalising a deal in 2017 with the Kurdistan Regional Government (KRG) to construct a Kurdistan-Turkey gas pipeline. The project aims to transport around a billion US dollars’ worth of gas from the Kurdistan region in northern Iraq to Turkey, with Rosneft seeking to market the gas by 2019 despite the present quagmire over energy exports in the Kurdistan region.
Rosneft’s effective takeover of the region’s oil and gas pipelines last year— which includes a pledge to provide billions in loans to the KRG— was initially deemed illegitimate by Iraq’s central government in Baghdad, citing the illegality of autonomous Kurdish energy exports. The deal faced pressure as oil exports in the region reached a standstill following the September 2017 Kurdish independence referendum and the consequent central government offensive to re-capture strategic territory, and particularly energy infrastructure, in the KRI. Despite the geopolitical hurdles, Rosneft’s investment and commitment concerning its deal with the KRG has allowed it to assume a strategic position in on-going negotiations between the semi-autonomous Kurdish authorities and Baghdad. For one, Rosneft has helped keep the KRG afloat through loans to develop key infrastructure and maintain salaries amid halted energy exports and a standstill with the central government in Baghdad over employee salaries in the KRI.
The stakes for Rosneft are clear: the deal grants the group 60 per cent ownership of the pipeline, with the Kurdish engineering firm Kar group retaining 40 per cent. The deal enables Rosneft to enter the Turkish gas market and challenge its competitor, the current monopolist of domestic gas exports, Gazprom— at present implementing the TurkStream pipeline project to stretch from the Black Sea in Russia through to Turkey. Equally, the relatively low production costs in the KRI in addition to its strategic position with regards to the Turkish market provide a valuable opportunity for expansion and diversification. As a key financial backer of the KRG, the move also provides Rosneft, and Russia, by extension, with a significant degree of political clout and economic influence in the region, particularly under the leadership of Igor Sechin, crony of president Vladimir Putin.
The deal also presents significant benefits to Turkey, given its increasing gas demands. Kurdish gas would allow Turkey to rely less on costlier suppliers in the region, such as Iran, and reduce dependence on Russian gas via the Blue Stream pipeline. Furthermore, a Kurdistan-Turkey pipeline may reduce security risks presented by periodic Kurdistan Workers’ Party (PKK) attacks on energy transport infrastructure. Nevertheless, Turkey’s jerky foreign policy remains a risk worth factoring into the equation. Meanwhile, although tensions between Erbil and Baghdad have considerably thawed since the referendum and military offensive last year, and the two sides reached an agreement to resume energy exports from the region, issues over KRG salaries and debt transfer will likely remain unsettled until after the elections scheduled for May this year.
Sources
https://www.ft.com/content/c42aa230-e489-11e7-97e2-916d4fbac0da
https://www.ft.com/content/1d425216-bd8c-11e7-b8a3-38a6e068f464
https://uk.reuters.com/article/uk-mideast-crisis-iraq-kurds-rosneft/russias-rosneft-to-take-control-of-iraqi-kurdish-pipeline-amid-crisis-idUKKBN1CP12F
http://www.rudaw.net/english/analysis/03042018
https://eadaily.com/en/news/2017/09/20/kurdish-gas-for-the-eu-why-rosneft-backs-up-gazproms-rivals
https://oilprice.com/Geopolitics/International/Russias-Kurdish-Pipeline-Gamble.html
About Paola Tenconi
Paola Tenconi is completing an MSc in Conflict Studies at the London School of Economics. She graduated with a first class degree and a distinction in Arabic from the University of Edinburgh and currently interns as a Middle East intelligence analyst focused on Iraq, Kurdistan, Turkey and Iran.
