Politics and Pipelines
Oct. 10, 2017
Tensions in the Middle East have risen in recent weeks as the September 25 referendum in the Kurdistan region of Iraq received about 70% of registered voters and concluded with an overwhelming “yes” for independence. Immediately following the event, a curfew was established in Kirkuk and the Iraqi government considered sending troops into the area. While the use of military force has yet to be realized, Turkey is considering shutting Kurdish access to the pipeline to Ceyhan. The Kurdish Regional Government (KRG) stopped reporting its crude volumes; however, Iraqi volumes exported through the pipeline equated to about 550,000 b/d in August, which includes SOMO volumes, while KRG exports are likely closer to 500,000 b/d. For now, it seems as though Kurdistan is remaining within the non-binding nature of the vote, keeping oil flowing at normal levels.
We note that a discontinuation of Kurdish access to the Ceyhan pipeline could put negative pressure on demand for crude tankers in the Mediterranean. The BOTAS terminal is the main outlet for Iraqi crude with volumes averaging at over 1.0 million b/d year-to-date, an 11% rise year-on-year. In the figure below, we can observe that about 354 vessels (VLCC-Aframax) loaded at this terminal through the first nine months of 2017, 55% Aframaxes, 43% Suezmaxes and just under 2% VLCCs. If Kurdish crude cannot make its way to this market we are likely to see these figures fall by around 50% and pressure ton-mile demand in this region, but likely increase demand for Middle East production (excluding Kurdistan).
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