Last week’s oil agreement between Baghdad and the Kurdistan Regional Government (KRG) was a milestone event and the market reaction was largely fitting – Brent crude futures dropped nearly 3 percent and regional operators all saw a considerable boost in share value as production and export growth is expected to rise across Iraq. However, the Islamic State (IS) militant group darkens what was a bright day for Iraqi unity and remains a significant stumbling block to the country’s rise to oil-superstardom.
The deal temporarily puts an end to Baghdad and KRG’s conflicting interpretations of oil-sharing agreements spelled out in Iraq’s 2006 constitution and allows for the immediate export of Kurdish oil. A total of 300,000 barrels per day (bpd) from the still disputed Kirkuk region and 250,000 bpd from Kurdistan will be supplied to Turkey, where it will be sold by the state’s oil marketing organization. For its part, Baghdad will resume budget payments to Kurdistan and provide $1 billion toward salaries and equipment for Kurdish peshmerga fighters.
KRG also has ambitious plans for the north, where the IS has occupied large swaths of land across northern Iraq and Syria.
ISIS targeted Iraqi Sunni population and rapidly took control of a number of strategically important cities during their June offensive. However, their survival – at least as more than just an insurgent group – depends on their control of oil. Today, the group operates several fields in northwestern Iraq. Figures vary, but ISIS oil production is estimated at anywhere between 20,000 to 200,000 bpd, netting them approximately $1 million daily.
IS lacks the ability to fully optimize production however, and their sights are set on larger and more productive fields – namely the rich Kirkuk field and its satellite blocks.
