Neneveh Looks To Kurdistan As Baghdad Seethes

BMI View: The Iraqi province of Nineveh seems to be interested in following the path set by neighbouring semi-autonomous Kurdistan with plans to rebuff Baghdad and independently manage its oil and gas resources. Assuming favourable terms and relative stability can be offered, we expect international oil companies to seriously consider the region given its potential. However, there are clear questions raised regarding the long term outlook for Iraq at time when tensions and violence are on the rise.

The political situation in Iraq appeared to grow more complicated with news that the provincial council of Nin e veh in the country's northwest granted the authority to the local governor to sign deals with oil and gas firms directly. The move would be a clear violation of the central governments interpretation of the law , with Baghdad claiming only it holds the authority to manage the nations hydrocarbons wealth.

However in the absence of a wider oil and gas law, the autonomous region of Kurdistan has pursued its own policy on energy with growing success . The Kurdistan Regional Gove rnment (KRG) has not only managed to attract international and national oil companies to its upstream despite threats from Baghdad that doing so will jeopardise their position in the south , but the semi- autonomous region is developing the capacity to independently export with pipelines to Turkey under construction.

Nineveh, The Next Kuridstan?

Nineveh may now be looking to emulate that success, with local governor Atheel Nujafi telling Reuters officials were 'in the process of setting laws and regulations to organise the work of oil companies to invest in the province.' According to Nujafi, oil majors were among the several firms who had already contacted provincial officials to express interest in potential investments.

If Nineveh can duplicate the Kuridsh model, it could be in line to attract sizable attention and investment. The area is prospective, evidenced by the 800mn barrel (bbl) Qayyarah oil field located south of Mosul and in the centre of the province. In a 2009 licensing round the field was awarded to Angola's state owned Sonangol after it submitted the sole bid. Plans call for the field to produce some 230,000 barrels per day (b/d) by 2016, however opening region up to new exploration and production (E&P) efforts with international oil companies (IOC's) in the lead could translate in significant upside.

The relationship between the KRG and Nineveh is warming, with authorities agreeing to 'coordinate and cooperate' in exploration as the two regions share borders and jurisdiction over some blocks is in doubt. The developments will obviously be worrying to the government of Prime Minster Nuri al-Mailki which called for Nuajifi to be dismissed when he initiated talks with ExxonMobil independent of Baghdad.

Development Points Toward Growing Tensions With Baghdad

The growing rejection of the central government's authority reflects what local officials say is Baghdad's failure to develop resources elsewhere as it instead focuses on oil and gas in the majority Shiite southern part of the country. These criticisms reflect not only the regional dimensions of current tensions, but perhaps more troubling for Iraq's future, the sectarian dimensions as well. The actions of Nineveh, a majority Sunni region, and the Kurdish dominated KRG, reflect growing tensions between Iraq's minority groups and the government of Nuri al-Maliki which is dominated by Iraq's majority Shiites.

Performing Poorly On Risk
Iraq - Short-Term Political Risk Rating, Out of 100.

The political and security situation has deteriorated in Iraq over recent month, with elevated levels of violence and growing pressure from Sunni majority regions for greater decentralisation of authority ( see, 'Risks To Stability Remaining Elevated,' August 12). In the view of our country risk team, the political situation in Iraq is due to remain volatile for the foreseeable future. While he KRG has remained relatively stable, owing to its lengthy history of political autonomy, we see risks that provinces such as Nineveh, which are certain to benefit from cooperation with an experienced partner in Erbil, may also face challenges as they build up their capacity to increasingly manage their own affairs.

This could translate into a slow start for upstream activity as Nineveh takes on management of its resources, but we note, given the areas prospectivity and the potential to tie-in discoveries to existing or planned infrastructure in the region, interest will be high assuming stable and attractive operating environment can be offered. This development highlights our belief that prospects of a further decentralisation of political power along sectarian lines should not be dismissed, and note this is a trend worth watching with obvious implications for the oil sector.

This article is tagged to:
Sector: Oil & Gas
Geography: Iraq, Iraq, Iraq, Iraq

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