The Door to Iraq’s Oil Opens

February 25th, 2008 - by admin

M K Bhadrakumar / Asia Times – 2008-02-25 00:58:52

(February 16, 2008) — The cynosure of Western eyes at the meeting of the Organization of Petroleum Exporting Countries, commonly known as OPEC, in Abu Dhabi, the United Arab Emirates, last December 5 was an unexpected personality — Iraqi Oil Minister Hussain al-Shahristani.

But that wasn’t a chance occurrence. By the time OPEC gathered in Vienna six weeks later, it was beyond doubt that Shahristani was on the way to becoming a celebrity in the West.

Shahristani is “a rare thing” in politics, to quote Toby Lodge, the well-known scholar on Iraq at the International Institute of Strategic Studies in London — “not too religious, not too political, not too secular, not too pro-American Shi’ite who [Grand Ayatollah Ali] Sistani would talk to”.

But for the ease with which Shahristani traversed in his later years the dividing line that separates religiosity and idealism from worldliness and pragmatism, Shahristani would have become a cult figure for human-rights activists, given his extraordinary background as a top nuclear scientist who turned a stubborn dissident, and then a reckless jail breaker from Saddam Hussein’s Abu Ghraib prison where he was tortured and tucked away in solitary confinement for an impossibly long 10 years till 1991.

But in Abu Dhabi, if Shahristani became a rising star for the Western media, that was for an entirely different reason. It was hardly metaphysical. Plainly speaking, the media had good enough reason to flatter him and pamper his vanities.

Iraq’s ‘Super Giants’
Of course, the soft-spoken, English-speaking Iraqi Shi’ite dissident leader was a familiar face in Western capitals through the 1990s. But today, he is no longer a political fugitive. He is no longer an Iraqi dissident seeking patronage. On the contrary, Shahristani finds himself in an enviable position as a creator of wealth for the Western world. He holds the key to the door that opens out to the magical world of Iraqi oil.

Iraq’s proven reserves of oil are only smaller than those of Saudi Arabia and Iran — and Iraq is only about 30% explored. Experts are generally of the view that Iraq’s actual oil reserves could well turn out to be at least double the 115 billion barrels of proven reserves. Beyond that, it is anybody’s guess as to the scale of Iraq’s as-yet-untapped gas reserves.

And Shahristani is visibly getting ready to negotiate the contracts for Iraq’s “super giants”. In the idiom of Big Oil, “super giants” are fields with at least five billion barrels of oil in reserve. Iraq’s super giants are Kirkuk (in Kurdistan), Majnoon (bordering Iran), Rumaila North and South (in the south), West Qurna (west of Basra) and Zubair (in the southeast) fields, and, possibly, the Nahr Umr and East Baghdad fields. In addition, Iraq is estimated to have 22 “giant” fields, each having more than 1 billion barrels of oil.

In fact, Iraq may host the largest untapped reserves in the world. There is a strong likelihood that Iraq’s reserves may turn out to be exponentially higher than the current estimations, which are based on old-style seismic surveys. All said, unsurprisingly, the world oil market is in a tizzy when Shahristani says something, anything. He is about to sign the contracts for these and many other large Iraqi oil-producing fields.

That indeed makes Shahristani a very important statesman today — at a time when worldwide oil demands are rising and consumer countries have appeared in Asia with gargantuan appetites for energy, when the oil majors’ booked reserves are in decline and the known global reserves happen to be primarily under nationalized systems.

The acuteness of the situation is apparent from the stark warning by the former chairman of the United States Foreign Relations Committee, Senator Richard Lugar, last year in a speech in New York that something like three quarters of the world’s oil reserves are located in countries which are not under American influence.

To cap it all, “we’re in a new oil policy ball game”, as author Steve Yetiv and economist Lowell Feld recently wrote, which is that the US’s capacity to ease oil prices is diminishing. On his recent visit to Saudi Arabia, US President George W Bush pushed the subject of high oil prices increasing the likelihood of an American, and therefore, a global recession.

There was a time since the late 1970s until quite recently when the US’s Saudi allies would have promptly pumped the market with additional oil for depressing the price. This time around, the Saudis heard out Bush, “noted that the weakening US economy is a valid concern, but they remain reluctant to increase oil supply”.

The two writers pointed out, “Saudi Arabia’s reluctance to address sustained high oil prices, even in the face of a potential recession, represents an important break with past Saudi oil policy … Why? The answer may define oil in the 21st century — or at least underscore the reasons for the US to seek greater oil independence.”

Urgency for Iraqi Oil
Yetiv and Feld, with much hesitancy, proceed to make an absolutely unthinkable suggestion that the Saudi reluctance might be borne out of a possibility that Riyadh is “getting global markets ready for the possibility that they may not have enough oil to be a long-term fuel pump to the world”.

After all, it merits attention that the US Energy Information Administration (EIA) significantly has revised its earlier 2000 prediction about how much oil Saudi Arabia would produce in 2010. The EIA scaled back the figure from 14.7 million barrels per day to just 11.4 million barrels per day. That is a major reduction. (Feld, incidentally, worked for 17 years for the US Department of Energy.)

In the current circumstances of the world energy scene, the above underscores why any plan to hasten the US effort to achieve greater oil independence translates in political terms as taking control of Iraq’s oil reserves. There is simply no other viable alternative open to the US.

Essentially, it boils down to the 20 words that the former US Federal Bank chief Alan Greenspan wrote towards the end of his memoir, The Age of Turbulence: Adventures in a New World, “I am saddened that it is politically inconvenient to acknowledge what everyone knows: The Iraq war is largely about oil.”

According to the International Energy Agency, the world demand for oil is set to increase from the current level of 85 million barrels a day ( mn b/d) to 116 mn b/d in 2030. Three quarters of the world’s oil reserves (1,200 billion barrels) are located in the OPEC countries, with the Persian Gulf countries accounting for 62%.

But the Persian Gulf countries are disinclined to raise their oil production sharply enough to meet the increase in global demand. Saudi Arabia, which has the world’s largest oil reserves, for instance, is only planning to increase its oil production by 1.5 mn b/d over the next several years.

Therefore, it becomes imperative that Iraq plays a major role in meeting the additional global demand of 30 mn b/d during the coming two decades. There is yet another side to it. Peak oil — when global oil production will reach a peak and then begin to fall — is a real possibility sooner or later. It has happened in the US; it is happening in Britain, the North Sea and Indonesia; it is expected to happen in Mexico and some other major oil producing countries during the coming five-year period.

In this scenario, the criticality of Iraqi oil production cannot but be overstated. Furthermore, Iraq is particularly blessed in certain other ways. Apart from its massive reserves of oil and gas, the cost of oil production in Iraq at US$1 to $2 per barrel is very low.

Second, the oil fields are dispersed evenly across the country.

Third, Iraq’s location itself is a boon. Unlike, say, the Caspian, Siberia or the Arctic, it is easy to develop oil export routes out of Iraq heading in several directions simultaneously — the Persian Gulf, Saudi Arabia, Kuwait, Jordan, Syria and Turkey. All this means that rapid expansion of Iraq’s oil production and the arrival of substantial amounts of Iraqi oil — exceeding 10 mn b/d — in the international market is an attainable objective.

US Presses for Iraqi deals
A major impediment has been the dangerous security situation within Iraq. But a significant US achievement in recent months has been the end of much of the fighting inside Iraq. Clearly, the US has bought off large segments of the Iraqi insurgency. Thousands of Arab Sunni fighters in western Iraq and parts of Baghdad have converted themselves as “comprador” militia at the beck and call of the US military. Such US-financed “resistance fighters” could number over 80,000 former insurgents.

Today, they actively collaborate with the US military in destroying the residual forces of the Iraqi resistance in the east and north of Baghdad and in cities such as Baqubah, Tikrit and Mosul, which are the residual hotbeds of insurgency. They have virtually decapitated al-Qaeda in Iraq.

The four-province region of the Multi-National Division-North (comprising Diyala, Salahuddin, Ninevah and Tamim provinces), which used to be the favorite haunt of al-Qaeda fighters, is all but completely pacified. The US forces’ commander in the region, Major General Mark P Hertling, has been quoted as claiming, “So many of them [al-Qaeda fighters] are going to the desert regions to just get away from being ratted out by the citizens and being pointed out and captured.

“Some of them are saying it’s not even safe in the desert because the night raids are coming to get them. And that’s a good thing. We want them to keep thinking that they can’t sleep well at night because we’re coming after them, because, quite frankly, we are.”

All indications are that the US has in the more recent period met with success in striking a similar deal with the troublesome Mahdi Army militia owing allegiance to Muqtada al-Sadr, which controls the Shi’ite districts of Baghdad.

This can be expected to have a positive impact on pipeline security. According to various estimates, there have been over 600 incidents of pipeline attacks since the US invasion of Iraq in March 2003; some 60 attacks on refineries; and over 500 attacks on tanker trucks. Close to 650 Iraqi oil workers might have been killed or wounded or kidnapped. Iraq’s dual pipelines in the north heading toward Turkey were a major target of attack. The improving security situation has been a factor in increasing Iraq’s oil production to nearly 2.4 mn bpd by end-2007, which is the highest level since the US invasion.

Oil production is now expected to cross the pre-war level of 2.6 million barrels by end-2008. Shahristani told The Times that he expected production to reach 6 million barrels per day within the next four years. The International Monetary Fund has predicted that Iraq’s economy, boosted by the increase in oil revenues, is slated to grow by 7% this year as compared to 1.3% last year. The Times newspaper recently reported that the real estate market has been sharply picking up in parts of Baghdad city and there are visible signs of a construction boom.

As can be expected, Washington is keen to exploit the vastly improved security situation in Iraq. The Bush administration is leaning on Shahristani not to wait for the fractious Iraqi Parliament to approve the Iraqi oil law that would have provided a legal framework for foreign investment in the oil industry. As the first step, the executives of some of the world’s oil majors have been meeting with Iraqi Oil Ministry officials since January 24 in Amman, Jordan, for discussing the terms of technical support contracts, which are in the nature of shorter-term deals.

Shahristani told Argus Media recently that these service contracts will “help Iraq fast-track the purchase of necessary equipment and train the Iraqi people to install them”. He said these companies would be favored in a bidding round for longer-term contracts on the Iraqi oil fields set for later this year. Another bidding round is expected to take place next year.

The Times of London reported that ExxonMobil, Chevron, ConocoPhillips and Shell have been targeted by the Iraqi Oil Ministry for awarding the service contracts (known as “technical support agreements” or TSAs).

The report said that in exchange for the oil, these four oil companies would direct training of Iraqi workers and equipment to Iraq’s largest oil and gas fields. The Middle East Economic Survey has quoted Shahristani as saying that the service contracts will be signed “within a few weeks”. The general expectation is that the TSAs will be signed during the third round of discussions due in March.

Meanwhile, the Iraqi Oil Ministry’s deadline for any interested oil firms to pre-register for the larger contracts to develop oil fields falls on February 18. Shahristani has promised an open bidding and transparent process but only in the event that he will be the decision-making authority. He suggested that competition would be intense. “Everybody in the world, more than 45 companies, have approached us [the Iraqi government] and shown a very keen interest in working with us — the Chinese, Russians, Indians, Brazilians,” Shahristani said.

In sum, as Ben Lando, United Press International’s energy editor put it, “Big Oil’s big dreams are close to coming true … According to insiders, Shell, which produced a technical study of Kirkuk in 2005, wants a deal for the field. BP wants one for Rumaila, which it studied last year. Shell and BHP Billiton are angling for the Missan field in the south. ExxonMobil is interested in the southern Zubair field while the Sabha and Luhais fields are being targeted by Dome and Anadarko Petroleum. ConocoPhillips is talking with the [Iraqi] ministry about the West Qurna oil field … Chevron and Total have teamed up in a bid for the Majnoon field.”

No doubt, it is pay-off time for the four majors who didn’t make an issue of the US military occupation of Iraq or the ensuing mess-ups during Paul Bremer’s rule or the ensuing acute security situation, but kept going with their nose on the ground and worked with the Iraqi ministry during the past four years in conducting reservoir surveys, assisting in the drawing up of work plans and in training personnel.

These oil majors simply chose to be around in Baghdad even when much of the oil industry was idling. Lando adds, “While service contracts would be highly profitable for companies, Big Oil wants risk contracts. Such deals are usually long term, covering its exploration costs and guaranteeing a profit if oil is found, and allowing them to put the reserves it discovers on the books, a boon in Wall Street’s eyes.”

Iraqi public opposition
Of course, Shahristani is skating on thin ice. His moves, despite the robust backing by the Bush administration, are political and highly controversial. The point is, Shahristani is virtually in a position to hand out jackpots to the oil majors. Everyone knows that apart from the security factor, the risk in exploring for crude in Iraq is virtually nil. “Historically it [oil] has been easy to find, inexpensive to produce and top quality”, Lando points out.

Washington counts on Shahristani to push the oil deals through despite the vehement opposition within Iraq. First, about 70% of Iraqis firmly oppose what Shahristani is attempting. The Iraqis see what is happening as a capitulation of their national sovereignty. Iraqis look back at the nationalization of their oil industry in 1972 as a source of pride and empowerment.

Second, there is vehement opposition from the labor unions in the Iraqi oil industry. They say that Iraq could increase its oil production by investing its own money and there is no pressing need at this juncture to solicit foreign investment.

Indeed, in 2006, the Iraqi Oil Ministry could only utilize 3% of its $3.5 billion reconstruction budget. The US Defense Department in a December 2007 report acknowledged, “The lack of capacity in contracting, the lack of trained budget personnel, concern about corruption and numerous other systemic structural impediments hamper faster execution.”

Iraq’s oil exports in 2007 brought in $35.5 billion, according to the US State Department. But a study by the Washington Times newspaper in January concluded, “Increased oil revenues stemming from high prices and improved security are piling up in the Federal Reserve Bank of New York rather than being spent on needed reconstruction projects.”

To be sure, the Iraqi labor unions have a point when they say that foreign investment is not the real need for the oil industry currently, but rather the ability to invest the surplus budget. Again, the labor unions are questioning the need of foreign expertise. They insist that national expertise is available within Iraq. The fact remains that in spite of Saddam’s gross mismanagement of the oil industry, Iraq had built up over the years a significant reservoir of manpower with a range of technical expertise.

“If they [Oil Ministry] are prepared to allocate more funding and spend the resources that already exist, there would be improvement and we could recruit more workers,” Hassan Jumaa Awad, president of the umbrella Iraqi Federation of Oil Unions recently told the United Press International news agency. Awad alleged that Shahristani is following a “deliberate” policy of shunning domestic investment with a view to make Iraqi oil workers look incapable.

The labor unions have now sought the help of the international labor community to their demands, which also question Shahristani’s intentions in awarding to international oil firms concession or risk contracts such as production-sharing agreements. Awad calls for an Iraqi oil law, “but we need to gain our full sovereignty before such a law is enacted”, and he insists that if a law is to be passed, it should be approved by Iraqi voters in a referendum.

Iraq’s oil unions and civil society organizations have joined hands in alleging that Washington and the present authorities in Baghdad, especially the Oil Ministry, are conspiring to hand over control over Iraq’s oil to oil majors. The news agencies reported that protesters who fear that Iraq’s oil wealth might be squandered met at a Middle East oil conference on February 5 in London where Iraqi and British oil industry leaders attended.

Bush’s Iraq Legacy
But the Bush administration’s priorities lie elsewhere. It is highly unlikely to pay heed to Iraqi public sentiments. There is precious little time left for the Bush administration in the White House. But it’s not just pork-barrel politics, either. There is also the aspect of the legacy of the Bush administration. With the Iraqi “surge” having proved a success, Bush is undoubtedly gearing up for the epitaph to his Iraq odyssey.

Big Oil deals in Iraq form the core of Bush’s strategy of creating a legacy for the US in the Middle East that may run for decades. Big Oil needs the assurance of a near-permanent US military presence in Iraq. And Bush is determined to provide that assurance. He is convinced that no serious American politician would defy the wishes of Big Oil. By logic, therefore, Bush is creating a historical legacy of an Iraq that will remain under American control for decades to come.

Therefore, the Op-Ed in The Washington Post on Wednesday jointly authored by Secretary of State Condoleezza Rice and Secretary of Defense Robert Gates is extraordinary for its thumb sketch of what Bush’s Iraq legacy is going to look like. The two top officials have written that a “crucial phase” is about to begin with the US negotiating a basic framework agreement with the Iraqi government aimed at “normalized relations”.

By the end of this year, the Bush administration proposes to altogether dispense with the fig leaf of the current requirement that the United Nations must authorize on an annual basis the presence and role of the US military in Iraq under the relevant UN resolutions. Rice and Gates argue that the Bush administration “would rather have an arrangement that is more in line with what typically governs the relationships between two sovereign nations”. Period.

The US-Iraqi framework agreement to be negotiated seeks to establish “a strong relationship with Iraq, reflecting our [US] shared political, economic, cultural and security interests”. In other words, Washington will have ensured that US policies in Iraq are sequestered from the purview of the UN once the US-Iraqi framework agreement is through by the end of the year. Concerned parties like Russia (or China) will simply be faced with the fait accompli of what the US chooses to do with Iraq.

Second, the US-Iraq bilateral framework will include what is known as a “status of forces” agreement, which is based on a recognition that “US forces will need to operate in Iraq beyond the end of this year for progress in stabilizing Iraq to continue. In these negotiations, we [US] seek to set the basic parameters for the US presence in Iraq.”

Third, the basic framework with Iraq will be negotiated with bipartisan support, fully involving the US Senate’s treaty-ratification authority via the appropriate committees of the Congress with briefings for the lawmakers and congressional input so that 2008 will go down in history as “a year of critical transition in Iraq … a foundation of success in Iraq — a foundation upon which future US administrations can build”. Once the hurly-burly of the primaries is done in the presidential race, Bush proposes to invite the presidential candidates to contribute to the finessing of the US’s Iraq strategy in the coming period.

What becomes evident is that the Bush administration neither intends to cut and run from Iraq nor is it in search of an exit strategy. On the contrary, it is ensuring that Iraq remains under American control for as long as it takes for the US to evacuate the oil and gas out of that country. Bush sees this as his historical legacy.

Bush is confident that his troop “surge” strategy in Iraq is working. According to US columnist and author David Ignatius, Bush favors keeping US force in Iraq close to the pre-“surge” level of 130,000 troops. Ignatius wrote, “Bush in effect is redoubling his bet on success in Iraq.”

It is a risky course insofar as Iraq is a polarizing issue in an election year. But there is logic in betting that with such high stakes for Big Oil in Iraq – thanks to Shahristani’s deals — no serious US politician with presidential ambitions would undermine Bush’s desire for continuity and his plans to leave behind a stable Iraq.

Russia Stages Comeback
Indeed, the rest of the world has already decided that it is time to take the Bush legacy in Iraq seriously. The alacrity with which Moscow is hurrying to get onto Shahristani’s gravy train is the latest tell-tale sign. Moscow is highly unlikely to waste its time in rhetoric ridiculing the Bush administration by pointing out that the US needs assistance to save face and leave Iraq with dignity or that Russia could help stabilize the situation, and so on.

Shahristani visited Moscow last August, but at that time Moscow committed the folly of not taking him seriously. (Actually, Shahristani was a university student in Moscow in the 1960s.) A Moscow commentator wrote after his visit, “The oil minister may say whatever he wants about the operations of foreign companies in Iraq, but the Iraqi Parliament has not yet passed a law on oil and gas. Therefore, oil companies can only make assumptions about work in Iraq.”

But Moscow didn’t need much time to revise its opinion and to take Shahristani very seriously. In November, Shahristani, guided by American legal advisors, canceled Russian oil company Lukoil’s contract with Saddam’s regime for the vast oil field in Iraq’s southern desert, West Qurna, with estimated reserves of 11 billion barrels of oil. Shahristani announced the field would be opened to new bidders as early as 2008. “We will defend our interests,” a senior Kremlin official warned. Moscow threatened to revoke a 2004 deal with creditor nations to forgive $13 billion in Iraqi debt.

But Moscow learned that ConocoPhillips was seriously eyeing West Qurna. Moscow concluded that Iraq’s oil scene was up for grabs, predators were around and there was no more time to lose. Thus, the formal signing of the agreement on Monday in Moscow writing off most of Baghdad’s Soviet-era debt has not come a day too soon.

The agreement stipulates that Russia will initially write off 65% of Iraq’s $12.9 billion debt, accrued mostly from Saddam’s arms purchases, and of the remaining $4.5 billion, 80% will be forgiven in two stages by 2009 if Iraq meets economic targets set by the International Monetary Fund, leaving Iraq to repay $900 million over a 17-year period from 2011.

The agreement opens the way for Russian oil companies’ return to Iraq. Separately, Russia has agreed to invest $4 billion in Iraq, including the Iraqi oil industry. Close on the heels of the debt-relief agreement, Moscow has indicated that Lukoil and other companies including OAO Zarubezhneft, a state-owned oil producer, and OAO Mashinoimport, a supplier of machinery for energy industry, are “preparing” to return to Iraq.

The Iraqi government has promised to pay “special attention” to previously signed contracts with Russian companies. But things may not be easy. The return of the Russian companies will be subject to US acquiescence, which in turn means Moscow will henceforth have to significantly roll back its earlier criticism of the Bush administration’s Iraq policy.

Russian Foreign Minister Segei Lavrov has stressed Moscow’s “utmost interest” in launching projects in the Iraqi gas, oil and electricity sectors, “but for the successful implementation of plans of economic development of Iraq it is necessary to solve two political problems: to achieve national reconciliation and settle the security issue”. In essence, Lavrov underscored Russia’s determination to seriously engage.

How the Russian “re-entry” plays out will be interesting to watch. Washington — and Shahristani — will have to work out the implications of the return of Russian oil companies to Iraq. A Middle East expert in Moscow pointed out, “If Russian companies are let in, somebody else will be kept out. It is not a matter of market competition.”

EU Reaches Out to Iraq
But Iraq is likely to impact Russia’s fortunes in a much more profound way on a second front where Moscow’s ability to influence is virtually nil. Moscow will be watching with anxiety the progress of the energy dialogue that has commenced between the European Union and Iraq. Alarm bells would have rung in Moscow when Shahristani travelled to Brussels and met the EU officials on January 31.

EU officials have openly acknowledged that their desire to seek closer energy ties with Iraq is a critical component of their broader strategy to reduce Europe’s dependence on Russian energy supplies. EU countries currently depend on Russia for roughly a quarter of their gas supplies. EU External Affairs Commissioner Benita Ferrero-Waldner told Shahristani, “Iraq is a natural energy partner for the EU, both as a producer of oil and gas and as a transit country for hydrocarbon resources from the Middle East and the Gulf to the EU.”

She said the EU was keen to see Iraq link into the Arab Gas Pipeline project from Egypt to Jordan near the Syrian border, which is under construction and is expected to allow European customers to tap into supplies from Egypt and other countries along the line via Turkey. The EU’s Arab Gas Pipeline project forms part of the 3,300-kilometer pipeline to transport gas from the Middle East and Central Asia to Europe while bypassing Russia.

The plan is to transport Iraqi natural gas from a gas field in southern Iraq to the EU through the Arab Gas Pipeline, which, when completed, will connect Syria, Jordan, Lebanon, Egypt and Turkey. Iraqi gas could then reach Europe through the planned Nabucco pipeline, which is to run from Turkey to Austria. Iraq has been invited to an upcoming ministerial meeting on the Arab Gas Pipeline project.

An interesting sideline is that access to Iraqi energy suddenly makes the Nabucco pipeline viable. Russia, through robust efforts in the recent past had gained the high ground as the key energy supplier for the southern European countries. The Russian efforts had dampened Nabucco’s prospects despite Washington’s vigorous backing for the project.

Now, when it appeared that Moscow had all but finished off Nabucco, thanks to Iraqi energy, Nabucco is rising again as a major challenge to Russia’s interests as the major energy supplier for Europe. The implications for Europe’s relations with Russia and even for the trans-Atlantic relations are far-reaching.

Shahristani told his EU interlocutors in Brussels that Iraq planned to develop its gas fields this year and should be in a position to supply Europe with gas “in two or three years”. Iraq is estimated to have 111 trillion cubic feet of natural gas reserves. Royal Dutch Shell, France’s Total and Italy’s Edison are seeking Shahristani’s approval for a deal to develop one of Iraq’s largest gas fields, Akkas, located near the Syrian border, which could be connected to the Arab Gas Pipeline.

On the oil front, Shahristani said in Brussels that Iraq is studying the possibility of new pipelines through Turkey. Oil from the Kirkuk fields in northern Iraq is currently exported through a pipeline that links up the Turkish Mediterranean port of Ceyhan.

India-Israel Energy Ties
EU-Iraq energy ties will be a worrisome development for not only Russia but also for Iran. Tehran has been nurturing the hope that the EU’s strategy to diversify its energy imports would eventually give impetus to the European countries to normalize their relations with Iran and that in turn would prompt them to withstand the US pressure to isolate Iran. But Tehran is watching with dismay that Iraq is fast becoming a golden goose for the EU and the expansion of EU-Iraq energy ties may dampen any sense of urgency in the European capitals for building up an energy dialogue with Iran in the near term.

The virtual “loss” of the EU market — in the near term, at least — compels Iran to turn more toward the Asian region. But here too, US pressure is working on India, one of Asia’s most significant energy markets, from linking up with Iran. Washington is instead encouraging Indian companies to become active in Iraq.

Ideally, Washington would like to promote a Turkey-Israel-India energy grid that could tap into the Iraqi reserves. This approach also fits in with the US geostrategy of developing Turkey, Israel and India as three “pivotal” states that are Washington’s natural allies in the regions surrounding the volatile Middle East.

In January, Turkey launched a feasibility study for a natural gas pipeline connecting northern Iraq’s fields to its Mediterranean port of Yumurtalik, which will run parallel to the oil pipelines. Once the northern Iraq gas fields are developed, 353 billion cubic feet of natural gas will flow to Yumurtalik. Turkey hopes to export liquefied natural gas (LNG) by tankers to destinations such as Israel and India. There is strong US backing for the project.

To the extent that India is kept away from linking with Iran, Washington also hopes to scuttle the prospect of an Asian energy grid developing that might involve Iran, Pakistan, India and China alongside Russia and the Central Asian states. Significantly, serious discussions have begun for the first time between Turkey and India on energy cooperation.

Turkish Foreign Minister Ali Babacan, who visited Delhi recently, has reportedly proposed to his Indian counterpart the possibility of Turkey exporting oil from the Ceyhan port to Israel’s Ashkelon-Eilat pipeline and Indian super tankers sourcing oil from the Israeli port of Eilat in the Gulf of Aquba. A visit by Turkish President Abdullah Gul to India, followed by a visit by Prime Minister Recep Tayyip Erdogan, is in the cards.

The Indian Oil Corporation is already building pipelines in Turkey. A major Indian company belonging to the powerful Reliance Group (which has collaboration with Chevron) is active in northern Iraq. (By a curious coincidence, the Kurdish leadership in northern Iraq and the Indian government have employed the same lobbying firm — run by Robert D Blackwill, a former deputy national security advisor and ambassador in New Delhi — to canvass for their interests in Washington.)

Indian companies have traditionally been active in the Iraqi oil sector. But what explains the US’s interest at this juncture is that energy cooperation in Iraq could significantly cement the strategic ties between Israel and India and thereby ease Israel’s regional isolation.

On the face of it, it would have made eminent sense for India to connect Iraq via a pipeline through Iran. But Washington’s entire strategy is to cut Iran out of the loop and to instead encourage Turkey, Israel and India to forge an energy grid.

However, a Turkey-Israel-India energy grid may face domestic opposition within India. The question of India partaking of the economic bonanza of US-occupied Iraq may militate sections of the Indian public opinion. The present Indian Parliament has adopted a resolution which seriously delimits Delhi’s collaboration with US-occupied Iraq.

How Indian public opinion reconciles its antipathy towards US “imperialism” with the tantalizing prospect of the country tapping into Iraq’s vast energy reserves will offer an engrossing political and diplomatic spectacle. But, in the short term, the prospect of Iraq as a significant source of energy supply is surely working as yet another damper on India-Iran energy cooperation. In that respect, the US strategy is working.

Turkey Major Beneficiary
In sheer geopolitical terms, the single biggest beneficiary out of all Iraq’s neighbors is going to be Turkey. Shahristani’s projects will catapult Turkey into the status of a crucially important energy hub in the US’s strategy. During his Washington visit last month, Turkish President Gul had meetings with Bush, Vice President Dick Cheney and the secretaries of State and Energy. The agenda of discussions related to the US and Turkey jointly working in Iraq to develop its energy sources.

US-Turkey energy cooperation in Iraq impacts on the geopolitics of the region in many directions. First, Washington will expect that Turkey go slowly on expanding and deepening its cooperative ties with Iran, a trend that the Bush administration had been viewing with disquiet in the recent past. Turkey can be expected to respond with pragmatism and calibrate its ties with Iran in accordance with the US sensitivity.

In turn, any recalibration of the dynamics of Turkish-Iranian ties will be a matter of utmost satisfaction for Israel. Correspondingly, therefore, we may expect a revival of warmth in Turkish-Israeli relations. Furthermore, Turkey is now poised to be a conduit for energy supplies from northern Iraq to Israel. Israel already enjoys strong influence in the Kurdistan region in northern Iraq. Thus, there is a tremendous convergence of interests between Turkey and Israel over issues of Israel’s energy security.

The Israel-Turkey political axis is bound to consolidate in the coming period, thanks to Iraq’s oil. But from Turkey’s point of view, the most important outcome is the readiness on the part of Washington to disengage from its erstwhile Kurdish allies in northern Iraq.

This is already giving Ankara a relatively free hand in militarily countering Kurdish militant activities. Washington is not only turning a blind eye to Turkish military incursions into northern Iraq but is even reportedly sharing vital intelligence with Turkey, which makes the Turkish military’s “hot pursuit” of Kurdish militants inside northern Iraq more effective. Washington is definitely leaning on the Iraqi Kurdish leadership to rein in the activities of Turkish militants based in northern Iraq.

Equally, Turkey is able to exploit the vested interests of Iraqi Kurdish leaders in oil trade. There are signs that Iraqi Kurdish leaders are cooperating with the Turkish military operations in meaningful ways.

Turkey has certainly influenced the US decision to scuttle on technical grounds the holding of a referendum regarding the status of oil-rich Kirkuk region in December as provided under the provisional Iraqi constitution of 2005. Conceivably, growing US dependence on Turkey could even lead to an indefinite postponement of the referendum beyond June this year.

Turkey is pressing for a UN-negotiated “special status” for Kirkuk, making it a region unto itself. Washington may well heed the Turkish suggestion. At a minimum, Ankara can heave a sigh of relief that the specter of an independent Kurdish national identity taking shape in northern Iraq has receded into the background. Without US backing, it is simply not possible for the Kurds in northern Iraq to assert their independence.

Turkey also finds common ground with the Iraqi Sunni and Shi’ite political blocs, who have made a pact against holding any referendum in Kirkuk until a new law is passed that would firmly establish Baghdad’s control over the province’s oil wealth. This enhances Turkey’s leverage in Baghdad. The Iraqi political alliance challenging the Kurdish separatist aspirations includes as many as 145 legislators in the 275-member Iraqi Parliament.

Indeed, from the Turkish perspective, all this is far from offering a permanent solution to the Kurdish problem as such. As the prominent Turkish editor Ilnur Cevik pointed out recently, “It is a problem that has to be addressed with pragmatism and with the notion that there are citizens of Kurdish origin who still do not feel they are being treated as first class citizens of the Turkish republic.” But the fact remains that Turkey gains valuable time to set its own house in order while Washington dotes on Ankara as a key ally in Iraq.

Turkey has played its cards brilliantly. With the correct mix of strategic defiance and realism, Ankara has persuaded the Bush administration to view the northern Iraqi situation through its prism.

In fact, out of all Iraq’s neighbors, it is Turkey that the US will have to count on in the coming period. The Turkish-US relationship, which went through a bad four-year period following Ankara’s refusal to assist in the US invasion of Iraq, has certainly regained some of its traditional verve as a key alliance. This adds immensely to Turkey’s regional status vis-a-vis its Arab neighbors, Russia, Iran, and even the European countries.

Turkey’s influential role in Iraq, in fact, makes it a significant player in the Middle East. But, more important to medium-term Turkish national priorities would be that Europe would be more inclined as time passes to take note of Turkey’s strategic importance. For the EU, Turkey is emerging as a vital energy bridge connecting the Middle East. At some point in the foreseeable future, this should turn to Turkey’s advantage, if only Ankara relentlessly continues to pursue its EU membership.

M K Bhadrakumar served as a career diplomat in the Indian Foreign Service for over 29 years, with postings including India’s ambassador to Uzbekistan (1995-1998) and to Turkey (1998-2001).

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