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The Kurdistan region of Iraq, which is run by an autonomous government often at odds with Baghdad, has attracted the interest of big oil companies such as Exxon Mobil and, most recently, Chevron.

Chevron announced last Thursday that it was entering the Kurdistan oil game by buying a majority stake in two exploration blocks.  Iraqi Kurdistan first gained autonomous status in a 1970 agreement with the Iraqi government; it’s status was reconfirmed as an autonomous entity within the Iraqi republic in 2005.  However, tensions have always run hot between the Kurdish Regional Government (KRG) and Iraq’s central government, making oil exploration in Kurdistan a considerable risk.  The KRG-controlled parts of Iraqi Kurdistan are estimated to contain around 45 billion barrels of oil, making it the sixth largest reserve in the world.  Extraction of these reserves began in 2007 and have steadily increased.

Although the oil produced is mostly sold in Kurdistan for about $60 a barrel, well below the world price, exporting the oil remains a considerable risk: the only way to carry the oil out of Kurdistan is via an Iraqi pipeline or by truck to Turkey.  As the New York Times article, “Chevron Makes Oil Exploration Deal in Iraqi Kurdistan,” points out, “Pipeline exports have been halted for several months because of a dispute with Baghdad over payments.  Kurdistan’s production capacity is about 250,000 barrels a day, but output is much lower because of export restrictions.”

Perhaps from a solely economic standpoint, this new venture into Kurdistan may prove profitable in the long run for Exxon Mobil and Chevron; however, it also has the ability to create a foreign affairs nightmare.  Alex Munton, an analyst at Wood Mackenzie in Edinburgh, believes that “the entry of large companies into Kurdistan was a double-edged sword.  Agreements bolster Kurdistan’s prestige, but also infuriate oil authorities in Baghdad and may cause Iraq to bargain even harder on export agreements.”

Diplomatic relations aside, this new enterprise does nothing to address any long-term sustainable energy solutions with regard to the environment.  This is yet another short-term delusion, a myopic response to a much more complex issue at hand.  It’s been said countless times before, but oil is a finite resource; Exxon Mobile and Chevron are doing a great disservice by investing in this waning, inefficient source of energy.

Read more about Chevron’s investment in oil from Kurdistan here.