Future of Landlocked Kurdistan Depends on Turkey’s Next Move
ERBIL, Kurdistan Region - Amidst Baghdad’s claims that Turkey is illegally transporting Kurdish oil according to a decades-old pipeline treaty with Iraq, Ankara maintains it has not violated any of its obligations, claiming it does not matter whether the oil is sent by Erbil or Baghdad.
"The amendment agreement in 2010 and the 1973 Crude Oil Pipeline Agreement do not differentiate between the north and south of Iraq,” Energy Minister Taner Yıldız told Turkish parliamentarians. “Whether it is coming from the north or the south, any crude oil received from the pipeline is considered Iraqi petrol. Our energy relation with Iraq is carried out according to international law."
Kurdistan’s de-facto independence hinges on this interpretation, as oil exports are currently the lifeblood of the Kurdish economy. Expansion of pipeline exports is the only way for Erbil to near the revenues it used to receive from Baghdad, before the $1 billion a month payments were halted early this year over the oil and other disputes.
Yet, Baghdad has a radically different understanding of the agreement.
A Ministry of Oil press release states that according to the treaty, Turkey and it’s state-owned pipeline operator, BOTAS, are “committed to reserve the entire pipeline, storage and loading system for the exclusive use of the Iraqi Ministry of Oil, and to handle and load crude oil coming from Iraq exclusively in accordance with instructions given by the Iraqi Ministry of Oil.”
The Iraqi government is currently pressing this argument in a suit against Turkey and BOTAS at the International Chamber of Commerce in Paris filed in May. It also delivered letters to potential buyers, threatening legal action if they bought Kurdish pipeline oil.
The devastating news for Kurds is that no matter how the court rules, risk-averse oil markets are avoiding purchases from the Kurdistan Regional Government (KRG) even if it is marketed at a discount. Only one of four tankers of Kurdish pipeline oil has been sold thus far, bringing in a paltry $93 million in revenues.
This is nowhere near enough to match the needs of the KRG, whose budget requirements have shot up since Erbil took control of “disputed territories” outside its formal borders and increased its defense expenditures in light of the upheaval in Iraq. For now, the region must rely on debt oil transported by trucks -- a more expensive and lower volume method -- which can only sustain the expanded economy’s needs for so long.
Kirk Sowell, a lawyer who runs a political risk consultancy, explains why the threat of legal action alone is enough to scare away buyers.
“Europeans are really big on arbitration, and it’s no coincidence the suit was filed at the International Chamber of Commerce in Paris,” he says. In case the court ruled against Turkey, buyers of Kurdish oil would be subject to asset seizures in countries that respect the ruling. “Any business that does business anywhere in Europe would be in danger,” he says, stressing that this means “any business of a certain size -- if you’re big enough you’re selling to someone in Europe at some point.”
It’s no small coincidence that the only Kurdish crude that has been delivered thus far was offloaded in Israel, sold to unknown buyers. Israel has a track record of ignoring rulings of international courts, and certainly would not respect a suit filed by Iraq. The two countries have technically been at war since 1948.
Since Turkey knows that buyers will not risk the Kurdish oil, simply restating its interpretation of the pipeline agreement will do little to quell mounting anxiety amongst KRG officials. Nor will it reassure international oil companies operating in the region and banking on major sales.
Solutions are in short supply at the moment. Turkey cannot abrogate its treaty without causing a diplomatic rift with Baghdad, sacrificing trade and energy investments elsewhere in the country. It could abrogate the treaty with much clearer justification, however, if Kurdistan was to successfully declare independence, something that would require the explicit endorsement of Ankara.
Thus far, the Turks have sent mixed signals about the prospect of independence. Ankara is lured by the prospect of cheap hydrocarbons, but wary of defying Baghdad and its international partners.
“The Turkish response has been convoluted to say the least,” says Aaron Stein, an associate fellow at RUSI, a defense and security think tank. “I think it’s fair to say that the Turks haven’t settled on a policy, and that’s OK… the Turkish government has a history of speaking too fast and not coordinating their talking points.”
Until Turkish Prime Minister Recep Tayyip Erdogan announces it, Stein claims, the policy will remain obscure.