Federal Iraqi forces remain in control of the 300,000 b/d Baiji refinery in northern Iraq and are protecting it on the ground and using air cover against insurgents, oil ministry spokesman Asem Jihad told Argus today.
"News reports that the refinery has been taken by the armed gangs are untrue, and the commander of the armed forces said so at noon today," said Jihad. "The army is protecting the refinery both on the ground and by air," he added. He pointed out that Baiji is located in the province of Salaheddein, not in Mosul, which has fallen to the Sunni insurgency forces. "The army is still present in Salaheddein," he said.
The refinery has been shut down because products were backing up as a result of not being trucked to areas seized by the insurgents or experiencing heavy fighting, said Jihad. He also denied that the Iraqi air force had bombed the refinery.
"A fire broke out at one of the refinery's waste storage tanks because the insurgents targeted it with mortars," he said.
The chairman of Iraq's parliamentary oil and gas committee Adnan al-Janabi had said on the sidelines of an industry conference in London yesterday that the insurgents had taken control of Baiji and had been selling products from it for some time. Al-Janabi is a political opponent of Iraqi al-Mailiki's Shiite-dominated government.
The peshmerga forces of the Kurdistan Regional Government (KRG) have moved into the northern oil city of Kirkuk and areas bordering their semi-autonomous north-eastern enclave but are making no push to claim further territory, or to militarily engage the insurgents. But the KRG will almost certainly not give up the new areas into which it has moved, particularly the city of Kirkuk, to which the Kurds lay claim and consider as their historic capital.
The situation on the ground is confused but an Iraqi oil official today said the peshmerga are in military control of the oil fields in the Kirkuk region but he insisted that the oil infrastructure remains in the hands of state-owned North Oil. The fields are not producing even for local consumption, he said.
The insurgents' swift military advances in northern Iraq as the federal army collapsed, and the KRG's move to partially replace the Iraqi army, particularly in areas adjacent to the Kurdish enclave, have strengthened the KRG's hand as it tries to establish its right to export crude through Turkey, independently of Baghdad.
The KRG, which has seen its pipeline exports to the Turkish port of Ceyhan gradually ramping up this year, is exporting some 125,000 b/d through a spur line that was commissioned late last year and links to Iraq's Kirkuk-Ceyhan pipeline at Fishkhabour at the northern Iraqi Turkish border. Fishkhabour on the Iraqi side is under KRG control. The KRG plans to step this up to 200,000-250,000 b/d in July and to 400,000 b/d by the end of the year, KRG oil minister Ashti Hawrami told an industry conference in London yesterday. Two crude cargoes have already loaded at Ceyhan and two more are due to be loaded this week to pre-agreed buyers, he said.
Prior to the Sunni insurgency attacks, the Iraqi government had said it was suing the KRG and Turkey over the exports because they were occurring without its approval, and were hence illegal. But with its army battling the Sunni insurgents, who appear to be trying to advance on Baghdad, the threat seems empty.
Hawrami was also keen to put paid to any suggestions that the KRG will take advantage of the current military chaos in Iraq to break away and declare independence. But he was clear about the need for negotiating a new political agreement that would apply to the entire country, strengthening regional control at the expense of centralised control.
"Under the current wave of violence and security risk, Baghdad should open a new chapter with the KRG by acknowledging all Kurdistan region's rights," said Hawrami. "Those who see the unity of Iraq through strong central controls should by now realize that type of model for Iraq has gone," he added.
Despite what Hawrami called Baghdad's "unfair" treatment of the KRG, "the KRG is offering to be helpful to Baghdad, and continues to reach out to Baghdad to agree to resolve all our differences through constructive dialogue," said Hawrami.
"The new Iraq can only be governed based on power sharing and wealth sharing," he added.
As an example of the help the KRG is offering Baghdad, he said the KRG has recently built a new spur line linking the 100,000 b/d Khurmala field – seized by the KRG from Iraq's state-controlled North Oil (NOC) in 2009 – to Iraq's Kirkuk-Ceyhan pipeline. The new line replaces a previously existing, federally built and operated pipeline which was worn out and faced problems. Hawrami said the KRG is willing to cooperate with Baghdad to move crude – currently shut in – from federally controlled Iraq to the Kirkuk-Ceyhan pipeline using the new spur line, which still requires testing.
He also implicitly lashed out at the US for siding with Baghdad in its dispute with the KRG over independent Kurdish crude exports. "Well-intended mediators, please do not pressure us any more or interfere with our rights, and stop appeasing the power grabbers in Baghdad," because doing so has to date "harmed Iraq's unity and stability," he added.
The reason for the KRG's reluctance to go for full independence is clear from the revenue figures that Hawrami presented. If the KRG were to export crude at full capacity of around 200,000 b/d, it would only be able to cover 50pc of its budgetary needs, said Hawrami. By year end, export capacity will rise to some 400,000 b/d, allowing the KRG to cover the 10pc of the Iraqi federal budget that has been allocated to the KRG, equaling some $14bn, according to Hawrami. As of next year, KRG exports will gradually climb to cover the 17pc of the Iraqi federal budget to which the KRG is entitled, equating to some $23bn, said Hawrami.
But a rise in KRG exports is contingent on payment of outstanding cost recovery to the foreign companies producing crude in the KRG-controlled upstream. The companies "will not commit to oil export" if they have to accept less than half of their contractual compensation, says Hawrami. Those companies have invested over $15bn in developing fields in Iraqi Kurdistan, and are required to invest an additional $10bn from 2014-2016, he said. The Iraqi federal budget has only set aside $2.75bn to pay them cost recovery, Hawrami complained.
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