The Kurdistan Regional Government has been quick to exploit Baghdad's preoccupation with the Islamic State, taking the opportunity June 12 to seize disputed territories, including the oil-rich province of Kirkuk. Kurdish paramilitary peshmerga claim they will remain in the contested territory until the Kurdistan Regional Government holds a referendum to formalize its authority. Turkey will draw a line at Kurdish calls for independence but has implicitly backed the Kurdistan Regional Government's attempts to export energy supplies, intending to diversify its own energy supplies and use the Kurdistan Regional Government's dependence on Ankara to help stabilize the Kurdish resistance at home.

The Politics of Turkey's Energy Dealings

ExxonMobil has become a component of the Turkish-Kurdish relationship. Much to Baghdad's chagrin, in October 2011, while operating the West Qurna 1 field in southern Iraq, ExxonMobil signed production sharing contracts for six exploration blocks in Iraqi Kurdistan. The ideal scenario for any energy firm operating in northern Iraq was for Baghdad to eventually agree to market and sell Kurdish-produced oil through its Baghdad-controlled pipelines and share a portion of the revenue with Arbil. Baghdad and Arbil then became embroiled in a payment dispute that led Arbil to export its own oil without Baghdad's authority, develop its own pipeline through Iraqi Kurdistan with Turkish backing and halt oil exports through the Baghdad-controlled Kirkuk-Ceyhan pipeline. ExxonMobil found itself in a contentious position in a three-way struggle involving Arbil, Ankara and Baghdad, with Iraq's central government using threats of legal action to pressure Western governments to blacklist oil exports from Iraqi Kurdistan.

This is why the timing of the resurfacing of the long-discussed deal between ExxonMobil and the Turkish Petroleum Co. to partner on shale gas and oil exploration is interesting. ExxonMobil has spent the past two years cooperating very closely with Turkey on its investments in Iraqi Kurdistan, which culminated late last year in a Turkish-controlled company's purchase of a 20 percent interest in all of ExxonMobil's blocks in Kurdistan Regional Government territory. A shale exploration deal with Turkey would only deepen that partnership and allow ExxonMobil to acquire promising shale deposits in Europe, something ExxonMobil tried to do before in Poland before exploration results proved disappointing. Of course, these deals only alienate Baghdad, but the Iraqi government has little leverage to punish the energy major running the 500,000 barrels-per-day West Qurna field in southern Iraq because of the field's importance to Baghdad.

Turkey's growing population and increasing natural gas consumption will require the country to remain a net energy importer. Shale, however, could increase Ankara's domestic production while Turkey maintains enough options for import sources so that no single country can undermine Turkish policy by using natural gas supplies for political purposes. Both Iran and Russia currently enjoy this level of leverage.

Turkish Shale Gas Potential

While Turkey's potential shale gas and oil deposits do not rival Romania's, Poland's, or even the United Kingdom's, they are significant enough that their successful development could increase Turkey's domestic natural gas production enough to counter Russian or Iranian influence over natural gas supplies. That said, developing them will be difficult politically, technically and financially for Ankara, and those constraints will probably limit the success of Turkey's shale gas development.

The scale of Turkey's shale gas resources is unknown, as the region has had limited shale exploration. In June 2013 the U.S. Energy Information Administration released a worldwide shale resources assessment that included two of Turkey's potential basins, the Thrace Basin in westernmost Turkey and the Southeast Anatolia Basin, which are collectively estimated to contain about 680 billion cubic meters of technically recoverable shale gas and 4.5 billion barrels of technically recoverable shale oil. The Southeast Anatolia Basin is by far the more promising of the two, containing almost all of the resources, but no one will have a clear picture of Turkey's resources until exploration reaches the advanced stages. Indeed, Turkey could have a far lower — or far higher — amount of shale gas and oil resources than current estimates suggest.

The potential ExxonMobil-Turkish Petroleum Co. deal would include blocks in both basins, but the two would not be the first companies operating in the region. Royal Dutch/Shell and two small Canadian firms, Valeura Energy and TransAtlantic Petroleum, have also signed agreements with Ankara over the last two years. Within the last year, Shell and TransAtlantic Petroleum have drilled promising exploration wells in the Southeast Anatolia basin, and both companies are continuing exploration efforts. It is too early to say whether the area can produce to its full potential. Some geological challenges will need to be overcome, including the shale formations' frequent faults, which are not nearly as common in the successful U.S. shale formations. Water scarcity in southeastern Turkey, where the Southeast Anatolia basin is located, could further limit widespread production. Moreover, shale gas production is a challenging operation in which supply chains and logistics often define the economics of production.

The last point is important because the most promising areas of shale gas exploration overlap regions where Turkey's Kurdish population is most heavily concentrated. Turkey's ruling Justice and Development Party is attempting to neutralize a long-running insurgency led by the Kurdistan Workers' Party. The Kurdistan Regional Government has close links to Kurdish groups in Turkey, and Iraqi Kurdistan is the primary refuge for Kurdistan Workers' Party fighters. So far, the Justice and Development Party's peace process has been predictably slow, as neither the Kurdistan Workers' Party nor the government is prepared yet to make major concessions. However, this is the furthest any Turkish government has progressed toward a peace deal with the insurgents, and as long as the dialogue can be maintained on both sides Ankara has a good chance of managing the insurgency in the near to medium term. This process is, of course, highly significant to any foreign energy firm operating in southeastern Anatolia.

The Turkish government can also use the prospect of energy development in the area to induce the Kurdistan Workers' Party's cooperation, though doing so will entail risks. Similar to cases in Iraqi Kurdistan, locals can use the prospect of energy development in their area to extract concessions from the government by staging sit-ins, blocking roads and carrying out protests. At this point, the ruling party still is critical of arrangements that involve sharing revenue from oil and gas production with local governments. Earlier this month, a pro-Kurdish opposition party tabled a bill calling for oil and natural gas revenue sharing. Turkish Energy Minister Taner Yildiz harshly criticized the bill, calling the demand naive and extremely inconvenient. The negotiations between the Kurdistan Workers' Party and the government over such concessions will be critical to maintaining the long-term security needed for shale gas development in southeastern Anatolia.

Turkey faces a number of challenges in extracting enough energy at home and in its near abroad to substantially diversify its energy supply. Russia is watching Ankara's efforts closely while working to keep Turkey dependent on Russian energy. At the same time, Russia keeps watch on U.S. attempts to build an alliance structure along its periphery, including Turkey. While ExxonMobil is not necessarily following a political strategy, this is one area in which the commercial and political interests of the United States can align.

For an energy firm, exploration interests may seem more clear-cut, but these interests become part of a broader strategic game. In ExxonMobil's case, the firm must balance its relationships in Iraq, where it operates the gigantic West Qurna I concession; in Russia, where it is deeply involved in the Sakhalin I project and partnering with Russian energy firms in the Arctic; and in Iran, which will defend its Shiite allies in Baghdad against Turkish-backed moves toward autonomy in Iraqi Kurdistan.