The Kurdish population voted overwhelmingly in favour of independence (it got 93% of the vote) in a referendum earlier this week, and the apparent mandate has not been well received in Baghdad.
Iraq’s central government has reportedly suspended all international flights into Erbil, the Kurdish regional capital.
Independence vote not recognised by Baghdad
The country’s prime minister Haider al-Abadi refused to recognise the result.
Baghdad claims the vote was an unconstitutional move to take control over oil revenues in the region and nearby disputed territories like Kirkuk.
Some 650,000 barrels of oil is produced per day in the region, with 150,000 bopd coming out of Kirkuk.
Brendan Long, analyst at WH Ireland, said: “Shutting in production would be easily done by neighbours that are all hostile to an independent and thriving Kurdistan.”
“The threat of logistical isolation at minimum would cut production growth to a halt.”
He pointed to new risks including potential impediments to western engineers and oil service personnel, access to equipment, potential problems for oil trading.
Long added: “Iraq has called for diplomatic missions to be recalled from Erbil, which we consider to be very hostile given the implication that their security may be at risk.”
Real threat of war developing more quickly
Looking specifically at the potential impacts on producers in the country, such as GKP and Genel, he highlighted: “With a potential war looming and limited support from OECD countries so far, the KRG may be inclined to hoard cash, potentially putting stresses on cash payments to oil companies operating in the region.
“We have been watching this simmer for years and see the recent escalation as an unprecedented flare-up with a real threat of war developing more quickly than we had envisaged.”
GKP shares were down 6.5% trading at 99.75p whereas Genel was down almost 4% at 135.75p.