Ruling against Kurdish energy sector risks economic woes, warns US

ERBIL, Kurdistan Region - The United States on Wednesday said Iraq’s ruling against Kurdistan Region’s oil and gas sector risks plunging the country into a greater economic crisis as it continues to battle a suffocating political crisis nearly a year after the elections.

“The February decision by the Iraqi supreme court invalidating Kurdish Regional Government arrangements for the export of oil and gas were – and the enforcement of that … simply would risk a widening kind of economic crisis,” Assistant Secretary of State for Near Eastern Affairs Barbara A. Leaf told reporters during a press briefing.

Iraq's economy is gradually recovering following a significant economic downfall in 2020 due to the rise of the coronavirus pandemic and the drastic fall in oil prices, recording a negative 8.6 GDP growth that year.

The top diplomat added that the emergence of a major economic crisis is “the last thing that the Iraqi public needs.”

Iraq’s top court in February found the Kurdistan Region’s oil and gas law to be “unconstitutional,” therefore striking down the legal basis for the independence of the Region’s oil and gas sector. The court’s decision has repeatedly been slammed by top Kurdish leaders, who call it “unconstitutional” and instead urge dialogue to address the issue.

Leaf suggested Baghdad and Erbil to resolve the dispute through a “third-party negotiation” which could serve as a basis to promote the implementation of a hydrocarbons law - which has not been enacted despite it, along with revenue-sharing laws, being drafted into the Iraqi constitution.

“There is no question that there is a need for larger hydrocarbons legal framework to resolve this, but in the meantime … Washington is quite concerned - that rushing forward and implementing this decision risks driving US firms out of Iraq, other forms out of Iraq,” Leaf said while stressing that such moves would drastically impact Iraq’s business environment and serve as a “terrible vote of no confidence” which could have negative economic repercussions beyond the Region.

Iraq’s oil ministry in July said US energy giants Schlumberger, Baker Hughes and Halliburton are in the process of liquidating and exiting existing tenders and contracts in the Region in compliance with the supreme court’s decision.

The US State Department later urged the Kurdistan Regional Government (KRG) and the Iraqi federal government to cooperate in dealing with disputes to safeguard interests.

“Any dispute between Baghdad and Erbil has the potential to set back those interests and the interest that we do share with the people of Iraq and the Kurdish people as well,” State Department Spokesperson Ned Price said.

Kurdistan Region President Nechirvan Barzani early September reiterated the need to solve outstanding issues between both governments, most notably the oil and gas dispute targeting the Region’s authority to administer its resources in a meeting with Leaf in Erbil.