The Baba Gurgur oil field near Kirkuk. The KRG halted oil exports following the central government's decision not to sign off on payments for regional oil. Kevin Frayer / AP Photo
The Baba Gurgur oil field near Kirkuk. The KRG halted oil exports following the central government's decision not to sign off on payments for regional oil. Kevin Frayer / AP Photo

Iraq's Kurdish tensions over oil worsen



The tensions between Baghdad and Erbil over Kurdish control of its oil resources have been further stoked by comments from Iraq's top oil official.

The Kurdish Regional Government (KRG) last week announced a halt to its exports, frustrated by the continued reluctance of the central government to sign off payments for oil flowing out of the autonomous region.

Hussein Al Shahristani, Iraq's deputy prime minister for energy affairs, responded by criticising the contracts awarded to international oil companies by the KRG as too generous, sayingthe companies were given "what they dreamt of in any place in the world".

The central government "had many remarks on the oil contracts signed in Kurdistan in the north, which do not achieve any profit for Iraq", he told Al Iraqiya TV.

Baghdad is irked by ExxonMobil's decision late last year to explore six blocks in the Kurdistan region, following the lead of Tony Hayward, the former BP chief executive who is heading the investment company Vallares, along with numerous smaller oil companies.

The central government has an informal policy of blacklisting oil companies active in the autonomous region from licensing rounds in the south of the country. But tough contracts and difficult conditions have made Kurdistan an attractive option for big operators over the rest of Iraq. The French oil major Total has hinted it may set up shop in the north.

The KRG stopped what it said were up to 100,000 barrels per day (bpd) of exports after becoming frustrated with the lack of further payments for its oil, which it receives from the finance ministry.

An initial two payments were made last May. Baghdad refuses to recognise the production-sharing agreements signed by the KRG, and the capital fears it will encourage secessionism if it allows Kurdistan too much influence over oil.

It also claims that Kurdish exports only amount to 65,000 bpd, sowing the seeds for further dispute.

Iraq's production last month reached the 3 million bpd mark, and new harbour facilities are boosting its export capacity. Nouri Al Maliki, Iraq's prime minister, has strengthened his position with adept political manoeuvering, increasing his ability to put pressure on Kurdistan. Experts say that will weaken the Kurdish position.

"With oil production from federal Iraq now starting to ratchet up on the back of recent investments, supported by the boost to southern infrastructure, it is arguably now a good time for the KRG to press its case and win the best deal it can," said Catherine Hunter, an energy analyst at IHS Global Insight.

UAE companies are also invested in Kurdistan's energy sector. Taqa, an Abu Dhabi company focusing on energy and utility assets, owns part of WesternZagros, a Canadian oil company that operates in two Kurdish blocks.

Taqa announced on Sunday it was buying 50 per cent of a 1,000 megawatt power plant in Kurdistan. DNO, a Danish oil company majority owned by RAK Petroleum, is also active in the region.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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COMPANY PROFILE
Name: ARDH Collective
Based: Dubai
Founders: Alhaan Ahmed, Alyina Ahmed and Maximo Tettamanzi
Sector: Sustainability
Total funding: Self funded
Number of employees: 4