In Edward Gibbon’s The History of the Decline and Fall of the Roman Empire, he tells the story of the Paulicians, ninth century Christian heretics with a stronghold in the Kurdish city of Tephrice, in what is now eastern Turkey.
They were a thorn in the side of the Byzantine Empire for decades, but were finally defeated by the armies of Emperor Basil I in the 870s, and Tephrice was destroyed. “The city was ruined,” Gibbon writes. “But the spirit of independence survived in the mountains.” More than 1,100 years later, that spirit survives still, prompting the Kurdistan region of northern Iraq to vote for independence in a referendum last month, a move that has shaken energy markets and companies around the world. As Anas Alhajji, a Dallas-based energy economist, put it in a quote for the Globe Post: “The Kurdistan-Iraq issues are endless and will keep casting their shadow on the oil market for years to come. ”Kurdish independence was opposed by the governments of Iraq, Iran and even Turkey, a former ally of the Kurdistan Regional Government, and on October 16 Iraqi forces took control of the oil-rich city of Kirkuk. The fall of the city shattered Iraqi Kurds’ hopes of independence: the oilfields of Kirkuk province were crucial to the dream of creating an economically viable Kurdish state. By Friday, Iraqi forces were consolidating their hold on the disputed region .The conflict has driven up the price of oil, because of fears of interruptions to the flow of oil in the pipeline that has been carrying about 550,000 barrels per day from Kurdistan through Turkey to the port of Ceyhan on the Black Sea.
Those fears appear to have been well-founded. Companies operating in Kurdistan say their production has not been disrupted, but Reuters reported last Thursday that flows on the pipeline to Ceyhan had dropped to about 200,000 b/d. Iraq has been talking about reopening another oil pipeline to Turkey, to give it a different export route for its oil, bypassing Kurdistan. In the longer term, there could also be an impact on oil supplies from the uncertainty facing international companies following the referendum vote and the subsequent conflict. Chevron, which has been exploring for oil in Kurdistan, last month started drilling its first well in the region for two years, and has now been forced to suspend its operations for the time being. The Iraqi government has asked BP to step in to help develop oilfields around Kirkuk. Rosneft, the state-controlled Russian oil group, is one company that has apparently not been deterred by the conflict. Its chief executive Igor Sechin suggested it would push ahead with projects in Kurdistan, and the company has agreed a deal to pay $1.8bn for a 60% controlling stake in the oil pipeline to Turkey. There was further evidence this week of Russia’s growing influence with other oil-producing nations. In the last Energy Source, I wrote about Mohammad Barkindo, secretary-general of OPEC, and his appeal for more allies to help manage the oil market. This week it became clear that the cartel’s existing pact with leading non-OPEC producers, first agreed at the end of last year, was likely to be extended until the end of 2018, stretching to two years the production cuts initially intended to last six months. Saudi Arabia’s energy minister Khalid al-Falih and his Russian counterpart Alexander Novak appeared to be taking their cue from Vladimir Putin, Russia’s president, who had earlier in the month signalled his willingness to look at extending the curbs. Mr Barkindo’s speech to the Oil & Money conference in London is worth reading in full for an excellent overview of OPEC’s thinking about how its co-operation with non-OPEC producers is starting to succeed.
Mr Putin, who was name-checked in Mr Barkindo’s speech, was meanwhile giving his own views on energy markets at a policy forum in Russia. He said he considered an oil price above $50 to be “fair”, and complained about the US trying to squeeze Russian gas out of Europe. “The recent sanctions package adopted by the US Congress was openly designed to push Russia out of European energy markets and to force Europe to switch to more expensive liquefied natural gas from the United States,” he argued. Earlier this month, I wrote about the problems facing would-be exporters of LNG from the US as they looked for customers in a market awash with gas. This week Charif Souki, the visionary founder of Cheniere Energy and now of Tellurian, explained just how tough the market was for sellers. “Nobody is keen to sign contracts,” he told Bloomberg. “Even the people who kind of think they should are afraid to do it. ”
Another set of US energy companies facing an uncertain future: shale oil producers. US oil production is forecast to keep growing and the industry is expected to attract a fresh wave of investment. But there are questions over how long the industry’s surge in productivity of the past few years can be sustained.The shockwaves from the FT’s scoop about Saudi Aramco possibly shelving its plan for an international IPO next year continue to reverberate. Aramco tweeted that the FT report was “entirely speculative”, and said it remained on track for IPO in 2018, and that message was reiterated by Khalid al Falih, the Saudi energy minister. Even so, suggestions that a delay in the international flotation is possible have persisted, with the sale of a 5% stake to China mooted as a potential alternative. Neil Collins argued that regulatory compliance could be one reason why Aramco was getting cold feet. The Economist described the IPO plan as “a mess.”
Source: Ed Crooks for the Financial Times