Oil & Gas Editorial: The End Of The Battle Of Mosul May Be The Beginning Of Iraq's Oil Destruction

The Cradle of Civilisaton has been rocked by the hand of conflict for more than half a decade: now, in the environs of the ancient Assyrian capital of Nineveh, the guns may be about to fall silent.

The Battle of Mosul, a raging offensive that has been ongoing since October 2016 between Islamic State (IS) fighters and the combined forces of the Iraqi central government and autonomous Kurdish Region, is grinding to a bloody halt.

According to sources at the battlefront, there are around 1,000 IS-aligned fighters left in Mosul occupying 15 per cent of the city, and their supply of ammunition is running low.

While it seems to be a matter of time before Mosul is liberated, the question now has turned to the nature of the liberation, and the role of the liberators.

Control of the supergiant Kirkuk field - Iraq’s oldest producing oil resource - has been a polemical political issue for decades, used by the Iraqi central government and the Iraqi Kurdistan autonomy as both a bargaining chip and ransom chattel when expedient. As Mosul smoulders, this political tango is still kicking up dust.

Currently, the Kirkuk field is pumping some half a million barrels of oil per day, 50 per cent less than its maximum pre-war output. A fractious entente struck between the Iraqi central government and Kurdish Regional Government (KRG), in which the North Oil Company controlled by the former pumps 150,000 barrels per day (bpd), and the KRG pumps 350,000 per day through the KRG-controlled Kirkuk-Ceyhan Pipeline to Turkey, is on the point of collapse.

The rift has emerged over the KRG’s ability to sell oil independently into the world market, cutting the central government out of any profit share on revenue recouped.

On top of this fracas, a Kurdish independence referendum has been promised as soon as Mosul is pacified, causing further perturbation for Iraq, OPEC’s second largest contributor and holder of the fourth largest proven oil reserves on Earth.  

Should the extant oil deal fall apart, some 100,ooo bpd would disappear from the international oil markets over night, causing an upward kick in crude’s market value.  Should the end of the Battle for Mosul usher in a new birth of freedom for the war-ravaged North of the country,  an independent Kurdistan could walk away with 45 billion barrels of proven oil reserves and cause short-term commodity price havoc.

Many are hoping that the war of words between erstwhile comrades in arms does not become a war of arms when the words verge on deafening.