Oil a key motive for U.S. air strikes in Iraq

Kurdish peshmerga fighters stand guard in June on the outskirts of Kirkuk, an oil-rich Iraqi city near the frontline of fighting with Islamic militants. Kurdish peshmerga fighters stand guard in June on the outskirts of Kirkuk, an oil-rich Iraqi city near the frontline of fighting with Islamic militants. Photo: Spencer Platt, Getty Images Photo: Spencer Platt, Getty Images Image 1 of / 1 Caption Close Oil a key motive for U.S. air strikes in Iraq 1 / 1 Back to Gallery

This week's U.S. air strikes in northern Iraq are being accompanied with an undertow of "it's all about oil" talk.

Take for example, Columbia School of Journalism Dean Steve Coll's observation in the New Yorker, that "Obama's defense of Erbil (capital of the semiautonomous Kurdish region) is effectively the defense of an undeclared Kurdish oil state."

It's no secret that Iraqi Kurdistan has an abundance of oil reserves, nor that U.S. oil companies, like San Ramon's Chevron Corp., are busy exploring there. Chevron has three "production sharing contracts" with the Kurdish government, covering a combined 444,000 acres, north of Irbil, where it's in the early testing and drilling stage. And it likes what it sees.

"We are very encouraged with the initial results in the Kurdistan region of Iraq," the company said in its earnings call two weeks ago. "Exploratory drilling and logging has indicated multiple pay zones in a large structure ... the formations have demonstrated the ability to deliver high liquid flow rates."

Days after the earnings call, the extremist Islamic State, which had been swallowing swathes of Iraqi territory to the south, were suddenly close to the gates of Irbil. Chevron and other energy multinationals, which had been well out of harm's way, began evacuating personnel.

Asked for an update, a Chevron spokesman said Monday, "We continue monitoring the situation. We remain in regular contact with the Kurdistan Regional Government and are dedicated to supporting the (Kurdistan Region of Iraq) in developing its natural resources."

"Could it affect operations? Civil wars always do," said Amy Myers Jaffe, a global energy policy expert at UC Davis. "But the level of danger appears reduced, now the U.S. is engaged, hopefully."

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Oil traders agree. "In essence we find U.S. air strikes more bearish than bullish for oil (prices) as the act finally draws a line for IS (Islamic State) and reinforces both the stability in south Iraq and in Kurdistan," Oliver Jakob, a Swiss oil analyst, told Reuters.

So, sure - setting aside for the moment that without U.S. intervention, the Yazidi minority group would be worse than they already are - much of this is about oil. Iraq, north and south, has enormous quantities of it. And - sorry - the world will depend on oil to help fill its energy needs far into the future.

Ironically, for Chevron, it would not be the end of the world if Kurdistan was forced offline. "It could be a very profitable place, but it's small for Chevron," said Jaffe, referring to the company's much larger oil holdings in Venezuela and the Saudi Arabia-Kuwait neutral zone, and natural gas in Australia.

A potentially bigger worry for both Chevron and the Kurds, she said, could be if Iraq did stabilize and unite, with Kurdistan under its umbrella. "It could be a problem for Kurds who saw the rest of Iraq as a failed state, and have had freedom of movement for its oil."

For Chevron, she added, a new arrangement in Iraq could entail the renegotiation of contracts it has with the Kurds, which by the way, Baghdad refused to recognize. "A federal government might want to revisit its export policy," she said.

Jaffe thinks that's less likely, and notes that Kurdistan's oil pipeline via Turkey continues to pump out oil - 120,000 barrels per day.