The centerpiece of negotiations between the Kurdistan Regional Government (KRG) and Baghdad over an oil dispute has evolved: It has gone from Kurdish oil contracts being deemed illegal and unconstitutional by Baghdad, to who should have authority over oil sales from the Kurdish fields, the State Oil Marketing Organization (SOMO) or the Kurdistan Oil Marketing Organization (KOMO)?
In the beginning, the debates were centered on who should pay the dues of the international oil companies (IOCs) operating in Kurdistan.
KRG’s argument was that Erbil would produce oil and contribute to the national budget, and in return Baghdad had to be responsible for paying the dues of the IOCs. This, Baghdad initially rejected and later agreed to, according to Kurdish officials and evidenced by several million dollars Baghdad paid in the beginning when the KRG exported some 100,000 oil barrels through the Iraqi-Turkish pipeline controlled by the federal government.
What led the KRG to stop exporting oil was the hesitation of the federal government in paying the rest of the fees of IOCs in Kurdistan. In protest, KRG halted oil exports in both 2011 and 2012, because Baghdad returned to its earlier position that KRG should pay the dues from the 17 share of the national budget it receives from the central government.
Recognizing Baghdad’s gambit, the KRG strategically sought to convert a gas pipeline, intended to feed a power station in Duhok province, into an oil pipeline to Turkey. The direction of the thinking was clear: We can’t trust Baghdad, and there is a need to get rid of the whims of federal officials.
Many viewed KRG's plan of constructing its own pipeline as wishful thinking, because of the high political and security risks as well as potential technical issues. But its completion in December last year convinced Baghdad to deal with this new reality.
From the previous oil battles and horse-trading between Erbil and Baghdad, one can see who has won until now, and who has better leverage against the other!
However, the hard fight has certainly yet to come.
In 2011 and 2012, Baghdad missed a historic opportunity to reassert its control over the Kurdish oilfields through agreeing to pay the fees of the IOCs. Probably when enough confidence is built, in cooperation with KRG, Baghdad could renegotiate the terms of oil concessions the KRG has granted -- an issue Iraq constantly brought up.
Back then, many argued that the recognition of KRG oil contracts would constitute paving the way for an independent Kurdistan and a Kurdish original plan behind its oil policy. But one should wonder how the Kurds, the main contributors and players of rebuilding Iraq politically and militarily in 2003, would seek independence from it?
Kurdish leaders made Baghdad their home for years and Kurdish forces alongside the Americans helped crush al-Qaeda militants in the country.
When Iraq became relatively stable in 2009, Baghdad struck back by reducing Kurdish presence in the Iraqi army and intelligence. Effectively since 2007, it has refused to pay the Kurdish Peshmarga forces, who are recognized as “Regional Guards” in the Iraqi constitution. This policy that is not strange for the current Kurdish leaders, since they experienced the same dilemma in the last decades.
In retrospect, Baghdad's policy towards KRG’s oil seems to have been shortsighted and non-visionary.
For example, in addition to millions of dollars Iraq loses daily due to the stoppage of KRG’s oil exports, it has also lost millions from an inability to export oil continuously through the Iraqi-Turkish Pipeline (ITP), due to frequent blasts hitting the pipeline. In 2013, more than 50 explosions hit the pipeline and halted oil exports to international markets.
Instead of constant threats to blacklist foreign companies, the Iraqi government could have assisted KRG in constructing the pipeline, which obviously goes through the safest and most stable part of the country. Together, they could have built a bigger pipeline, and probably have completed it earlier. Then, technically it was possible to reroute some of Kirkuk’s oil through KRG’s pipeline during times when ITP’s operations stopped because of security reasons. This could have saved Iraq billions of dollars annually, while better connecting Kurdistan to the rest of Iraq.
Realizing that threats of blacklisting oil operators in Kurdistan would not dissuade them from backing down, Baghdad resorted to the next step in its fight to subjugate the KRG: An “economic siege,” implemented by cutting off Kurdistan’s budget.
Baghdad's calculation seems to go like this: Once people's salaries are not paid, they would turn against their leadership. But this did not happen, and probably never will. On the contrary, Baghdad’s policies have driven the Kurds further away from the center. Now, Kurds feel much less attached to Iraq, and have lost trust in any future they may have in the country. Certainly, this feeling is not new. But the recent policy employed by Baghdad reinforces a historical Kurdish fear in Iraq: Once Baghdad is strong, it is less likely to play nice.
In TV and radio programs and in interviews, most people ask: “If Baghdad would want to starve us, what’s the point of staying with that country?”
To lessen the impact of Baghdad’s economic blockade and to give confidence to people, Kurdish businessmen have so far offered over $180 million in loans to KRG to pay employees. This is not enough, but psychologically it is powerful.
Because of the internal and external pressures, Iraqi Prime Minister Nuri al-Maliki seems to have no option but to calm the tensions, not just between the federal and regional governments, but also among Iraqis in general, because his policies have further polarized the country.
For example, people in Kirkuk staged rallies and condemned Baghdad’s move against Kurdistan. In the meantime, protestors have threatened to halt oil exports through sit-in protests. The economic siege also drew the ire of Iraqi intellectuals and writers in Baghdad, where they protested against cutting the salaries of people in Kurdistan.
In contrast, Basra, the nerve center of Iraq's economy, has threatened to cut oil exports if Baghdad restarts budget payments to the KRG.
While Maliki's policy gained some support in the southern Shiite areas, he soon found himself polarizing the country and fueling Kurdish and Arab nationalism against one another, with potential risk of an ethnic war.
The disheartened Sunnis also have refused to attend parliament sessions to pass the budget, which requires the KRG to export 400,000 oil barrels a day in return for the 17 percent budget portion.
Furthermore, the Iraqi speaker of parliament Osama Nujaifi, a Sunni, strongly rejected that the budget should be used against Kurdistan as a political tool. He called it unconstitutional and unacceptable.
Nujaifi visited Erbil and met with Kurdistan Region President Massoud Barzani. They vowed to work together to put limitations on authoritarianism in Iraq, and according to reports they talked about a Sunni-Kurd alliance to counter Maliki.
Maliki also recognizes the economic cooperation between the KRG and the Mutahidun list led by Nujaifi in Nineveh province, which borders Kurdistan. Last month, Nineveh’s Provincial Council awarded Erbil-based Kurdish Kar Group a contract for a mega-refinery with a 90,000 bpd capacity.
Externally, Baghdad is faced with another blunder: Signing a multi-million dollar arms deal with Iran, as reported by Reuters, which clearly violates UN, US and EU sanctions, imposed on Tehran for its nuclear program.
As a final point, Baghdad's economic siege seems to have backfired and has failed to accomplish its intended consequences. If Baghdad had fulfilled its obligation in paying the dues of the oil companies in Kurdistan in 2011 and 2012, that would have been the first foundation stone of trust between Kurdistan and Iraq, with no need for the situation arriving at the current state of affairs.
