Kurdish Oil Puts Region at Political Crossroads

WASHINGTON DC - Recent progress in the Kurdistan Region’s energy sector has put the autonomous enclave at a crossroads that could prove hugely significant to long-term political and economic developments, analysts and experts told Rudaw.

The Kurdistan Regional Government finished building a pipeline late last year that connects its oil and gas to world markets through Turkey’s Ceyhan port, and KRG Prime Minister Nechirvan Barzani disclosed last week that Erbil has a 50-year oil deal with Ankara.

But the first shipment of Kurdish oil has had a troubled journey aboard a tanker that has been held in the Mediterranean due to US pressure, Kurdish officials told Rudaw on Friday.

Michael Knights, an Iraq expert at the Washington Institute for Near East Policy, said that there are two competing visions for the oil development: the plan that sees Kurdistan’s economic independence in the medium- to long-term future, and the one that sees it as already here.

“You only get to roll the dice once, but which one do you want to do?” Knights asked. “The problem is this: the oil industry, if they try to go economically independent this year and something goes badly with it, that will put a shadow over the sector.”

The pipeline to Ceyhan opened in December, and before long more than two million barrels of Kurdish oil was stored on the Mediterranean coast. Erbil and Ankara delayed the sale, hoping to resolve its dispute with Baghdad.

But following a decision by Baghdad to freeze the Kurdistan Region’s monthly budget in January, Kurdish authorities decided to sell their own oil to compensate for their 17 percent share of the national budget held by the central government.

The US said it did not support independent oil exports from Kurdistan, while Washington’s initial attempts to bring Erbil and Baghdad together appear to have come to a dead end.

“(The Americans) are highly involved, but they haven’t had a great deal of success moving either side off of their basic positions,” Knights said about the Baghdad-Erbil dispute.

Denise Natali, from National Defense University in Washington DC, said there is an interest in Iraq maximizing oil production through its northern corridor, but that it is equally important that Erbil and Baghdad resolve their disputes before drastic steps are taken to rely on Turkey for the exports.

“There’s every reason that this could be a win-win situation if it could be done in a legal way,” Natali said. “Pretty much everybody wants Iraq to maximize the northern corridor, including Kurdish crude.”

“All of these things are coming together to show the world, to show investors, to show Iraqis, that the Kurds are going to move forward with their plans,” Natali added.

“The question remains how much do you want to sell, under what conditions and what timing,” she noted. “The fact that it’s going to different ports and it’s considered hot cargo is not good for the Kurdistan region.”

For their part, Kurdish authorities are aware of the complications surrounding the oil issue. However, they defend their act as constitutional and say that Erbil still hopes to reach a lasting agreement with Baghdad through dialogue.

“We are open to dialogue, but if Baghdad chooses to close all the doors we will certainly not be standing there doing nothing,” KRG Prime Minister Barzani told the Kurdish parliament recently. “Selling our oil was a clear message for Baghdad to realize that we will not back down and will do what we have promised in the past."

In his speech before parliament, Barzani said that Iraq owes nearly $5 billion to the Kurdistan Region in delayed funding.

Joel Wing, a long-time Iraq blogger and analyst, believes that the energy dispute between Baghdad and Erbil is part of broader political disagreements in Iraq.

“The political dispute is the real reason why they are pushing so hard on (oil) right now,” Wing said. “I think the rhetoric is just going to keep on in a very high level and that’s going to play out in the government formation.”

Wing believes that the current dispute will be even harder to resolve given the serious Kurdish-Sunni opposition to the nomination of Nouri al-Maliki as Iraq’s prime minister for a third term.

To approach the problem of budgets and authority, Erbil and Baghdad will have to reconcile over Kurdistan’s long-term role in Iraq, said Nussaibah Younis, from Harvard University’s Belfer Center for Science and International Affairs.

“At its heart the problem is that the KRG and the Iraqi central government fundamentally disagree on the terms on which the KRG is to be part of Iraq,” Younis said.