BP’s High-Stakes Return to Kirkuk

Shahriar Sheikhlar

Shahriar is a Mechanical Engineer and MBA graduate with more than 22 years experience largely in Oil and Gas in Iran and then in Kurdistan…

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By Shahriar Sheikhlar – Jan 31, 2025, 11:00 AM CST

bp is set to return to Kirkuk’s oil sector in February 2025.
This deal could strengthen both bp’s position in Iraq and Prime Minister Al-Sudani’s political standing.
Challenges remain, including security threats, export infrastructure uncertainties, and regional geopolitical tensions.

The history of the British Petroleum Company (bp) in Kirkuk and Iraq can be traced back to the 1920s, when the company—later named BP—spearheaded the operations of locating, exploring, producing, and exporting crude oil from Baba Gurgur in Kirkuk, which was considered the world’s largest oilfield at the time. The exploitation of Kirkuk’s oil lasted until the early 1970s, when the then-Iraqi government nationalized the crude oil industry after a decade of challenges.

Following the 2003 invasion of Iraq by U.S. alliances, bp’s presence in Iraq resumed with a major stake in the Rumaila oilfield contract. Subsequently, the company signed a $100 million agreement with Iraq’s North Oil Company (NOC) to study Kirkuk’s oil fields. However, this agreement was not renewed beyond 2019 due to what bp claimed was “below expectations … at least for us.” This perspective was linked at the time to the lack of export opportunities for Kirkuk’s oil, particularly in light of the 2017 conflict between Iraq and the Iraqi-Kurdish region. This conflict stemmed from the Kurdish Regional Government’s (KRG) push for independence, which led to the Iraqi military’s intervention to reclaim control of Kirkuk and other disputed areas from the Kurdish Peshmerga forces.

In a recent update, it was revealed that bp will officially sign a deal for its third involvement in Kirkuk’s oil sector in the first week of February 2025. Meanwhile, Kurdistan’s oil exports remain halted due to a ruling by the Paris Arbitration Court of the International Chamber of Commerce (ICC) in March 2023. Responsibility for the Kurdish region’s oil exports is now under the control of Iraq’s state-owned company SOMO, which supports the previous argument about bp’s withdrawal from Kirkuk in 2020.

Even though bp had previously downplayed Kirkuk’s oil reserves in 2020, its decision to return could face geopolitical and geo-strategic challenges.

Kirkuk: A Disputed Area with Huge Oil Reserves

Kirkuk is one of Iraq’s disputed regions, beyond the control of the Kurdistan Regional Government (KRG) and subject to Article 140 of the Iraqi Constitution, a claim consistently asserted by Kurdish leaders over the past two decades.

The governance of Kirkuk province has also been a point of internal Kurdish conflicts, particularly between the KDP and PUK. At times, securing control over Kirkuk has required alliances with non-Kurdish entities, as seen in the 2024 power shift when the PUK reclaimed the governorship after a seven-year tenure.

Furthermore, Kirkuk holds one of Iraq’s largest oil and gas reserves, estimated at over 9 billion barrels of oil and billions of cubic feet of associated and natural gas. The province also boasts a refining capacity of approximately 200,000 barrels per day.

These resources, combined with its diverse demographics, underscore Kirkuk’s strategic importance in Iraq’s modern history, dating back to the 1920s.

bp in Kirkuk: Impacts, Internally and Regionally

bp’s return to Kirkuk through a new contract with the Iraqi government could bring mutual benefits. The deal is expected to be profitable for the oil company while also carrying geopolitical significance for the government.

A reliable source familiar with the negotiations stated that the agreement includes profit-sharing provisions if production reaches 1 million barrels per day (bpd). Given that Kirkuk’s production capacity was around 1.5 million bpd in the 1970s, this goal seems achievable—though damages caused by reinjecting excess fuel oil and sediments into Kirkuk’s wells could lead to serious operational challenges and increased extraction costs.

The new contract structure appears more attractive to major technology companies like bp, as opposed to the Technical Service Agreement (TSA) previously used by the Iraqi government.

Both parties stand to strategically benefit from this deal.

The giant oil company bp will regain access to the Kirkuk oil fields after years of absence, while the Iraqi federal government and Prime Minister Al-Sudani will leverage this deal to strengthen their political standing ahead of elections.

This agreement, alongside Al-Sudani’s recent deals with U.S. and Western companies, suggests that he may have secured Western support for his political future, despite lacking the religious influence of some competitors.

Additionally, achieving over 1 million bpd in Kirkuk could strengthen Iraq’s position in negotiations with the KRG, particularly regarding oil exports and federal budget allocations.

From a regional perspective, expanding Iraq’s northern and western oil production could enhance its export capacity through routes such as:

The Kirkuk-Ceyhan pipeline (Turkey)
A potential restoration of the Kirkuk-Syrian Banias pipeline
The Iraqi-Jordanian Aqaba pipeline

This could further boost Iraq’s geopolitical leverage and reinforce its role in OPEC and OPEC+, particularly in addressing global energy security challenges affecting Western nations and China.

In conclusion, bp’s reemergence in Kirkuk, as part of Al-Sudani’s ambitious agenda for his upcoming tenure in governing the Iraqi cabinet, could present significant challenges to both the oil company and Al-Sudani’s belief in the future of the country’s political environment. The forthcoming months are likely to offer greater clarity on the power struggles among Shiaa parties in anticipation of the upcoming elections, the dynamics within Kurdish factions, and the regional reactions to the developments surrounding bp’s contract and Al-Sudani’s positioning within the Iraqi government.

By Shahriar Sheikhlar for Oilprice.com

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