Non-binding it may have been, but the people of three Kurdish governorates and the city of Kirkuk have voted overwhelmingly to seek independence from Iraq. The movement for this has been building up over the years – Saddam Hussein’s administration kept it quashed but the subsequent political landscape in Iraq has encouraged it. The referendum, and its results, was quickly condemned by the central Iraqi government, as well as Kurdistan’s neighbours of Turkey and Iran.
The central Iraq government considers Kurdistan a renegade province, asserting that it holds sovereignty over the land and – more importantly – its oil riches. Yet, the Kurdistan Regional Government (KRG) still calls the shots, and despite central protests, sells its own oil that powers its own economy. It is a situation analogous to China and Taiwan or Spain and Barcelona. The original proposition for the referendum was for the three major Kurdish regions. This had been given a lukewarm response by Iraq’s central government, but when it was expanded to include Kirkuk – where oil was first discovered in Iraq in 1927 – hackles were raised and retaliation was threatened.
At Iraq’s requests, Iran closed its airspace surrounding the Kurdish regions, preventing flights, while also conducting military exercises at the border in a show of force. Turkey condemned the referendum in no uncertain terms, going as far as threatening military intervention. The issue is optics. Turkey is dealing with its own restive Kurdish minority population, as is Iran, and the worry is that the referendum would spur Turkish and Iranian Kurds to band together to force an independent Kurdistan carved out of bits of Iraq, Iran and Turkey.
It is Turkey that the KRG should worry about. Even though the vote was declared as non-binding – merely an indication of the people’s desire of independence – Turkish Prime Minister Binali Yildirim said the vote was ‘laying the ground for conflict.’ This is crucial because Turkey is the only conduit for Kurdish crude oil to reach the wider market, shipped via pipeline to the port of Ceyhan on the Mediterranean. Kurdish oil could pass through Iraqi ports, but because the Iraqi central government considers all oil produced within its borders under the authority of state crude marketing agency SOMO, the KRG would receive no revenue from this. And now Turkey is threatening to close this sole valve, which would leave the landlocked KRG with much oil and no place to sell it. And the KRG has a lot of oil. The region produced some 550,000 b/d of oil last year, and looks set to boost output to 600,000 b/d, putting it on par with OPEC members Qatar and Ecuador. The entire region itself is estimated to hold some 45 billion barrels of crude reserves, which is more than Nigeria. This is the root of the conflict. The region is rich – very rich – in oil. And the Iraqi government will not let it go without a fight.
Worst still for the KRG is that Turkey is now leaning to treating all oil originating from Iraq as under Iraqi central control through SOMO. The current pipeline leading to Ceyhan is controlled by the Kurds and piggybacked upon by the federal North Oil Company; Turkey’s new policy would mean that revenue from all that oil will go to Iraq, not split between the KRG and Iran as it now is. It may not lead to that. Most signs are pointing to this being political bluster and grandstanding to indicate disapproval. Oil continues to flow through the Turkish pipeline without any interruption, and looks set to do so for a while. The KRG has recently signed plans with Russia’s Rosneft to build and expand natural gas pipelines in Kurdistan, while Chevron drilled its first exploration well in the Sarta block in Iraqi Kurdistan in two years.
What the referendum has achieved, is to draw the lines in the battleground for Kurdistan. These lines will not be crossed. They will form the basis of negotiation between the KRG and the Iraqi government on how best to move forward with their relationship. The KRG cannot afford to make new enemies; their ‘friends’ in Turkey and Iran are problems enough. But what they have is oil. And that is a very good bargaining chip in their quest for independence.
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Supply chains are currently in crisis. They have been for a long time now, ever since the start of the Covid-19 pandemic reshaped the way the world works. Stressed shipping networks and operational blockages – coupled with China’s insistence on a Covid-zero policy – means that cargo tanker rates are at an all-time high and that there just aren’t enough of them. McDonalds and KFCs in Asia are running out of French fries to sell, not because there aren’t enough potatoes in Idaho, but because there aren’t enough ships to deliver them to Japan or to Singapore from Los Angeles. The war in Ukraine has placed a particular emphasis on food supply chains by disrupting global wheat and sunflower oil supply chains and kicking off distressingly high levels of food price inflation across North Africa, the Middle East and Asia. It was against this backdrop that Indonesia announced a complete ban on palm oil exports. That nuclear option shocked the markets, set off a potential new supply chain crisis and has particular implications on future of crude oil pricing and biofuels in Asia.
A brief recap. Like most of Asia, Indonesia has been grappling with food price inflation as consequence of Covid-19. Like most of Asia, Indonesia has been attempting to control this through a combination of shielding its most vulnerable citizens through continued subsidies while attempting to optimise supply chains. Like most of Asia, Indonesia hasn’t been to control the market at all, because uncoordinated attempts across a wide spectrum of countries to achieve a similar level of individual protectionism is self-defeating.
Cooking oil is a major product of sensitive importance in Indonesia, and one that it is self-sufficient in as a result of its status as the world’s largest palm oil producer. So large is Indonesia in that regard that its excess palm oil production has been directed to increasingly higher biodiesel mandates, with a B40 mandate – diesel containing 40% of palm material – originally schedule for full implementation this year. But as palm oil prices started rising to all-time highs at the beginning of January, cooking oil started becoming scarcer in Indonesia. The government blamed hoarding and – wary of the Ramadan period and domestic unrest – implemented a Domestic Market Obligation on palm oil refineries, directing them to devote 20% of projected exports for domestic use. Increasingly stricter terms for the DMO continued over February and March, only for an abrupt U-turn in mid-March that removed the DMO completely. But as the war in Ukraine drove prices even further, Indonesia shocked the market by announcing an total ban on palm oil exports in late April. Chaotically, the ban was first clarified to be palm olein only (straight refining cooking oil), but then flip-flopped into a total ban of crude palm oil as well. Markets went haywire, prices jumped to historical highs and Indonesia’s trading partners reacted with alarm.
Joko Widodo has said that the ban will be indefinite until domestic cooking oil prices ‘moderate’. With the global situation as it is, ‘moderate’ is unlikely to be achieved until the end of 2022 at least, if ‘moderate’ is taken to be the previous level of palm oil prices – roughly half of current pricing. Logistically, Indonesia cannot hold out on the ban for more than two months. Only a third of Indonesia’s monthly palm oil production is consumed domestically; the rest is exported. An indefinite ban means that not only fill storage tanks up beyond capacity and estates forced to let fruit rot, but Indonesia will be missing out on crucial revenue from its crude palm oil export tax. Which is used to fund its biodiesel subsidies.
And that’s where the implications on oil come in. Indonesia’s ham-fisted attempt at protectionism has dire implications on biofuels policies in Asia. Palm oil prices within Indonesia might sink as long as surplus volumes can’t make it beyond the borders, but international palm oil prices will remain high as consuming countries pivot to producers like Malaysia, Thailand, Papua New Guinea, West Africa and Latin America. That in turn, threatens the biodiesel mandates in Thailand and Malaysia. The Thai government has already expressed concern over palm-led food price inflation and associated pressure on its (subsidised) biodiesel programme, launching efforts to mitigate the worst effects. Malaysia – which has a more direct approach to subsidised fuels – is also feeling the pinch. Thailand’s move to B10 and Malaysia’s move to B20 is now in jeopardy; in fact, Thailand has regressed its national mandate from B7 to B5. And the reason is that the differential between the bio- and the diesel portion of the biodiesel is now so disparate that subsidy regimes break down. It would be far cheaper – for the government, the tax-payers and consumers – to use straight diesel instead of biodiesel, as evidenced by Thailand’s reversal in mandates.
That, in turn, has implications on crude pricing. While OPEC+ is stubbornly sticking to its gentle approach to managing global crude supply, the stunning rebound in Asian demand has already kept the consumption side tight to match that supply. Crude prices above US$100/b are a recipe for demand destruction, and Asian economies have been preparing for this by looking at alternatives; biofuels for example. In the past four years, Indonesia has converted some of its oil refineries into biodiesel plants; in China, stricter crude import quotas are paving the way for China to clamp down on its status of a fuels exporter in favour of self-sustainability. But what happens when crude prices are high, but the prices of alternatives are higher? That is the case for palm oil now, where the gasoil-palm spread is now triple the previous average.
Part of this situation is due to market dynamics. Part of it is due to geopolitical effects. But part of it is also due to Indonesia’s knee-jerk reaction. Supply disruption at the level of a blanket ban is always seismic and kicks off a chain of unintended consequences; see the OPEC oil shocks of the 70s. Indonesia’s palm oil export ban is almost at that level. ‘Indefinite’ is a vague term and offers no consolation to markets looking for direction. Damage will be done, even if the ban lasts a month. But the longer it lasts – Indonesian general elections are due in February 2024 – the more serious the consequences could be. And the more the oil and refining industry in Asia will have to think about their preconceived notions of the future of oil in the region.
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An online shop is a type of e-commerce website where the products are typically marketed over the internet. The online sale of goods and services is a type of electronic commerce, or "e-commerce". The construction supply online shop makes it all the more convenient for customers to get what they need when they want it. The construction supply industry is on the rise, but finding the right supplier can be difficult. This is where an online store comes in handy.
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Most construction supply companies have an online shop where customers can purchase everything they need for their project, but some still prefer to use brick-and-mortar stores instead, so it’s important to sell both in your store.
Construction supply is an essential part of any construction site too. Construction supply shops are usually limited to the geographic area where they are located. This is because, in order for construction supplies to be delivered on time, they must be close to the construction site that ordered them. But with modern technology and internet connectivity, it has become possible for people to purchase their construction supplies online and have them shipped right to their doorstep. Online stores such as Supply House offer a wide variety of products that can help you find what you need without having to drive around town looking for it.
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