Israel and Iraqi Kurdistan: the oil connection
Just under half of the crude extracted from Kurdish oil fields so far in 2017 has made its way to Israel.
Israel has been the top buyer of crude oil from the Kurdish region of northern Iraq this year, according to shipping data and interviews with industry analysts, in a murky trade that underpins the Jewish state’s unique position as a supporter of the Kurdish Regional Government’s (KRG) hotly contested independence referendum last month.
Just under half of the crude extracted from KRG oil fields so far in 2017 has made its way to Israel, according to Clipperdata, a US-based company that tracks global oil shipments, dwarfing the amount exported to Italy, the next biggest buyer of Kurdish crude.
While the buyers in Israel are private firms, the purchases help bankroll the autonomous region and provide a practical plank to Israeli prime minister Benjamin Netanyahu’s statement before the independence vote that Israel “supports the legitimate means of the Kurdish people to obtain their own state."
The Kurds funnel their estimated 500,000-600,000 barrels per day of crude to the global market through a pipeline that runs to the port of Ceyhan in southern Turkey -- an outflow that Turkish President Recep Tayyip Erdogan has twice threatened to sever if the Kurdish government in Erbil begins taking concrete steps towards breaking away from the federal government in Baghdad.
From Ceyhan, tankers often turn their rudders towards Israel.
Matt Smith, director of commodity research at Clipperdata, said his firm can track the ultimate destination of Kurdish oil sailing from the Turkish port using ship tracking and port agent bills that record its unique grade, referred to as “Kirkuk”.“
Typically we record Israel receiving just under 300,000 barrels (average per day) of waterborne crude deliveries and just under half of those are of Kurdish crude grade Kirkuk,” Smith told i24NEWS. “So they are the largest supplier of waterborne crude [to Israel].”
A list compiled by the Gorran Movement, a Kurdish opposition party, showed Israeli firms snapped up at least 3.8 million barrels of KRG crude in September. Attempts to contact the party to seek further information about the figures were unsuccessful, however it parried with observed shipping movements over the same period.
The trade has been pushed partly underground by the unresolved legal spat between Erbil and the federal Iraqi government over who has the rights to export the oil and how the revenue is divvied up.
From Ceyhan, tankers carry Kurdish crude to the global market, with shipping data and satellite imagery showing that many disgorge their cargo in Israeli ports.
However the ships often list another destination before diverting suddenly to Israel, according to TankerTrackers, an online database maintained by oil trade enthusiasts.
While Israel does not detail crude oil imports in its foreign trade data, one of the website’s co-founders Samir Madani said they can still glean solid statistics using ship tracking websites such as Marine Traffic, and analysis of satellite imagery.
“We have formulas which can translate everything we know about the vessel's dimension in combination with depth in order to tell us how many barrels are aboard that vessel,” he wrote in an email. “When a delivery/pickup has taken place, the draft level changes and reveals a new barrel count.”
Many tankers also anchor in international waters off the coast and transfer their cargo to other vessels who turn off their satellite tracking transponder before heading back to Israel, several industry analysts told i24NEWS.
Earlier this month a Malta-flagged tanker, Seasong, sailed from Ceyhan with its destination listed as Egypt’s Port Said. However while cruising past the Israeli coast, it abruptly veered off course and sailed for Ashkelon.
Alan Mohtadi, a consultant who has worked with oil companies in Iraqi Kurdistan, said that Israeli firms typically buy the crude through international trading houses.“
Israel has no specific role in helping KRG selling the oil. They are buying the crude through oil traders, and since Iraq [does not] have any formal relations with Israel they can’t go after them” or sue them, Mohtadi said.
The KRG’s Minister of Natural Resources, Ashti Hawrami, confirmed the flows to Israel in an interview with Reuters news agency in 2015 and added that Israel often acted as a middle-man, on-selling the oil on the global market.
In August 2015 the Financial Times newspaper reported that Israel was procuring almost two thirds of its crude from Iraqi Kurdistan, suggesting that the trade may have eased slightly over the last two years. Israel also reportedly takes crude from countries including Kazakhstan, Azerbaijan and Russia.
Israel’s Ministry of Energy would not comment for the story. It typically does not discuss the country’s sources of crude. Paz, the Israeli energy firm that operates the oil refinery in Ashdod, did not respond to a request for comment.
A viable trade?
The booming trade that goes back as far as 2014 faces some headwinds, not least the specter of political instability roiling Kurdistan as leader Massoud Barzani’s plots his next moves after last month’s bid for independence.
The KRG may also be facing serious export quality issues as their fields can’t produce enough quantities of ‘lighter’ grades than they currently do.
Israel’s two refineries can process any type of crude, according to energy and geopolitical analyst Yesar Almaleki, who specializes in the Iraqi energy industry.
“This means they can process medium crude types, exactly like the ones produced by KRG. The close proximity of Ceyhan also plays in terms of shipping costs.
However, he warns that the “steep discounts Israeli and other refiners have enjoyed may soon lose feasibility as the KRG crude becomes maintained at the medium to light grade equivalent to other middle eastern crudes and sell at the Brent benchmark rather than below it. Buyers will simply not take the risk of dealing with KRG for the same price they can pay for a completely ‘legally safe’ cargo.”
“Of course, this depends on KRG’s willingness to see their crude not being underpriced anymore,” he added.
Regional tensions could also complicate the trade.
On the very day that Iraqi Kurds voted overwhelmingly for independence from Baghdad, Turkish President Recep Tayyip Erdogan threatened to turn off the taps of the oil pipeline that carries Kurdish crude through Turkish territory to Ceyhan.
He added to the warning after a visit to Iran last week, announcing that “in the case of northern Iraq, Iran, Iraq and Turkey will form a tripartite mechanism and will decide on shutting down the oil,” according to quotes carried by the Hurriyet Daily News. He also accused the Mossad, Israel's foreign spy agency, of backing the Kurds' independence bid (Israel denies the claim).
The sudden pulling of Kurdish oil from the market would not only have an impact on global prices, but also on Israel in particular, says Smith of Clipperdata.
In such an event, Israel “would have to go in the market and not only that they would have to find a similar grade to Kirkuk oil,” if, as is likely, their facilities have been designed to handle it.
However, he describes Erdogan living up to his words as a “low-likely event to happen,” noting that among other considerations, Turkey pockets significant revenue from the pipeline.
Another advantage for Turkey in maintaining ties with the KRG is the potential for natural gas imports, says Matthew Bey, a senior global analyst at private intelligence firm Stratfor.“
While they do not consume most of the oil that comes from Kurdistan there is the potential down the road for natural gas exports,” he said, noting that “Diversifying [natural gas sources] away from Iran and Russia” would be a strategic advantage for Erdogan noting his rocky relationships with both countries.“
So we saw much more of Barzani using it as a political mechanism… his term ended in August 2015 so we saw it as much more him trying to reassert his role.”