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Iraq and the Kurds: The High-Stakes
Hydrocarbons Gambit
22.4.2012
By Crisis Group - Middle East Report N°120 - 19 Apr
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Kurdistan president Massoud Barzani (R), Iraqi PM
Nouri Al-Maliki (L). Photo: ekurd.net
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April 22, 2012
Executive Summary And
Recommendations
A simmering conflict over territories and resources
in northern Iraq is slowly coming to a boil. In
early April 2012, the Kurdistan regional government
(KRG) suspended its supply of oil for export through
the national Iraqi pipeline, claiming Baghdad had
not fully repaid operating costs to producing
companies. The federal government responded by
threatening to deduct what the oil would have
generated in sales from the KRG’s annual budget
allocation, potentially halving it. This latest
flare-up in perennially tense Erbil-Baghdad
relations has highlighted the troubling fact that
not only have the two sides failed to resolve their
differences but also that, by striking out on
unilateral courses, they have deepened them to the
point that a solution appears more remote than ever.
It is late already, but the best way forward is a
deal between Baghdad and Erbil, centred on a federal
hydrocarbons law and a compromise on disputed
territories. International actors – the UN with its
technical expertise, the U.S. given its unique
responsibility as well as strategic interest in
keeping things on an even keel – should launch a new
initiative to bring the two back to the table.
Each side has its narrative, based on history,
accumulated grievances and strong sense of
entitlement. For now, neither is inclined to settle
the
conflict peacefully through serious, sustained
negotiations, as each believes its fortunes are on
the rise, and time is on its side. They are wrong:
time is running out, as unilateral, mutually harmful
moves are pushing the relationship to the breaking
point, with the hydrocarbons-driven stakes and
attendant emotions so high that conflict looks more
promising to them than accommodation and compromise.
The two unwilling partners in an Iraqi enterprise
born of colonial machinations – Arabs and Kurds –
have spent 90 years in unhappy cohabitation. Kurds
have waited for the moment when they will succeed in
removing the shackles of an overbearing, at times
highly repressive, central state. They know that
when Baghdad is weak, they can take steps to bring
their dream of statehood closer to reality, but that
when the centre is strong it will use its superior
resources to push them back into their place – or
worse. This is why the Kurds are so alarmed at
attempts by Prime Minister Nouri al-Maliki to amass
power at the expense of his rivals and rebuild a
strong state, armed with U.S. weaponry, under his
unchallenged control.
Ever since arriving in Baghdad on the coattails of
the U.S. invasion in 2003, the Kurds understandably
have used their new position and the centre’s
weakness to develop their own region. They seek to
reverse a legacy of discrimination and economic
neglect but also to create an escape route should
relations with Baghdad sour beyond repair. Yet, in
many ways, this approach contains elements of a
self-fulfilling prophecy: by pressing their
advantage, Kurds inevitably aggravate matters,
convincing the federal government that they are
aiming for secession – and aiming to take with them
a good chunk of disputed territory that Kurds claim
as historically part of a notional Kurdistan but
that also appears to be immensely rich in oil and
gas.
Perhaps most worrying to Baghdad, Kurdish leaders
have lured international companies to explore and
exploit the region’s suspected hydrocarbons wealth.
Nor have they stopped at the Green Line that divides
their region from the rest of Iraq; instead, they
have signed contracts for acreage located squarely
in disputed territories. The latest (and largest) to
agree to play this game was ExxonMobil,www.ekurd.net
which arrived on the scene in October 2011, taking
six blocks, two of which, along with a corner of a
third, lie across the Green Line. It thus placed
itself at the heart of the conflict, potentially
accelerating the centrifugal forces that are tearing
at the Iraqi fabric. While ExxonMobil may have
calculated that by doing so it could help bring
Baghdad and Erbil to the table and effect progress
on a federal hydrocarbons law, the likelier outcome
is that both sides will further entrench their
positions, thus increasing the chances of violent
conflict. From Baghdad’s perspective, the Kurds are
making mincemeat of any attempt to have a unified
federal oil strategy; increasingly, it views them as
untrustworthy partners in government who are seeking
to break up the country.
But the Kurds face a problem. While they pursue an
independent oil policy and have taken important
steps toward that end by drafting their own oil law
in 2007 and signing over 40 contracts with foreign
oil companies without Baghdad’s input or approval,
they lack the means to export their oil without
Baghdad’s help and therefore its permission. To
date, the federal government has used its control
over the national pipeline network, as well as its
hold on the treasury and budget, to rein in the
Kurds’ ambitions.
Hemmed in by Baghdad and anxious to become
economically self-sufficient, Erbil is turning its
eyes to another potential outlet for its oil:
Turkey. Massoud Barzani, the Kurdish region’s
president, reportedly told foreign visitors to his
mountain redoubt that if Maliki remains in power
beyond the 2014 parliamentary elections, the Kurds
would go their own way. Not coincidentally, 2014 is
when the Kurdish region expects to complete
construction of its own strategic oil pipeline, one
that skirts (federal government) Iraqi territory
before reaching the border with Turkey. For Kurdish
leaders, economic dependency on a democratic
neighbour with an attractive window on the West is
far preferable to a continued chokehold by a regime
displaying authoritarian tendencies – all of which
raises the question of what Ankara would do if the
Kurds ask it to take their oil without Baghdad’s
approval.
Turkey’s main objective in Iraq has been to keep it
unified. To this end, it has undertaken economic
steps since 2007 that would bind the country’s
various parts into an economic union, hoping that
politics, especially the relationship between
Baghdad and Erbil, would follow suit. It also has
encouraged both sides to agree to a federal
hydrocarbons law, the added benefit of such
legislation being that energy-poor Turkey could
import oil and gas from Iraq’s immense southern
fields, as well as from the Kurdish region, coming
closer to fulfilling its aspiration of becoming a
major transit corridor for regional hydrocarbons.
The Kurds hope, however, that Turkey’s thirst for
oil and gas will align with their own thirst for
statehood.
Ankara is unlikely to shift course, frustration with
its neighbour’s failure to agree on oil legislation
and its eagerness to purchase oil and gas from the
Kurdish region notwithstanding. Ideally, it would
import Kurdish products without jeopardising its
relationship with Baghdad, though that seems beyond
reach.
The Kurds have not lost hope. As they see it, a
regional crisis – such as war between Iran and the
U.S. or the break-up of neighbouring Syria – might
constitute a game-changing occurrence, persuading
Ankara to risk its relations with Baghdad in
exchange for energy security and a stable (Kurdish)
buffer against an unpredictable, possibly chaotic,
suspiciously pro-Iranian and increasingly
authoritarian Arab Iraq. But such scenarios might
not unfold and, for a multitude of reasons, one must
hope they do not. The answer to the current impasse,
in other words, is not to wish for a cataclysmic
event with potentially devastating repercussions for
all. It is not to bank on the central Iraqi
government surrendering resource-rich territories it
deems its own and has the means to hold on to by
force. And it is not to gamble on a radical move by
Turkey toward a separate deal with the KRG when
Ankara has its own, deep-seated fears concerning a
potentially newly invigorated Kurdish population on
its own territory.
For Baghdad and Erbil, reaching a deal will be very
difficult. But the alternatives surely would be far
worse.
RECOMMENDATIONS
To the Government of Iraq and the Kurdistan Regional
Government (KRG):
1. Reduce tensions and improve the environment for
resolving differences by:
a) re-committing publicly to a negotiated solution
to the status of disputed internal boundaries and
the conflict over oil and gas contracts;
b) agreeing to take no further unilateral steps in
disputed territories, such as issuing new oil and
gas contracts; and
c) refraining from inflammatory rhetoric concerning
mutual relations, the status of disputed internal
boundaries and the issuance of oil and gas contracts
in disputed territories, especially (in the Kurds’
case) in the run-up to provincial elections in the
Kurdish region on 27 September 2012.
2. Work, along with other Iraqi parties and
alliances, toward the success of a planned but
delayed national conference regarding a practicable
power-sharing arrangement in Baghdad.
3. Resume negotiations promptly on the status of
disputed internal boundaries and a federal
hydrocarbons law and agree, as part of such
negotiations, to open channels of communication and
coordinated action, including:
a) a channel for frequent communication between
Prime Minister Nouri al-Maliki and KRG President
Masoud Barzani or their designated senior
representatives; and
b) the appointment of a non-voting official from
each side to, respectively, the Iraqi cabinet and
the KRG’s council of ministers to promote early
flagging of disputes.
To the Government of Iraq:
4. Speed up payments to producing companies
operating in the Kurdish region, as agreed.
5. Refrain from inflammatory rhetoric toward Turkey.
To the Kurdistan Regional Government:
6. Resume export of oil through the Iraqi national
pipeline at agreed volumes.
To International Oil Companies:
7. Refrain from signing contracts with either the
government of Iraq or the KRG for acreage located in
disputed territories; and suspend all operations in
disputed territories until the status of internal
disputed boundaries has been resolved.
To the Government of Turkey:
8. Refrain from inflammatory rhetoric toward the
Maliki government, continue to emphasise Turkey’s
interest in the unity of Iraq and engage with the
Maliki government and the KRG to assist them to come
to an agreement over the status of disputed internal
boundaries and a federal hydrocarbons law.
To the UN Assistance Mission for Iraq (UNAMI):
9. Revive the high-level task force, at least to
address flare-ups along the trigger line; support
negotiations between Iraqi stakeholders on disputed
internal boundaries by providing technical
expertise and political advice at all levels; and
propose specific confidence-building steps in the
disputed territories based on its April 2009 report.
10. Should these negotiations reach a dead end on
their individual tracks, move Iraqi stakeholders
toward a grand bargain combining the issues of
power, resources and territories, as proposed in the
mission’s April 2009 report.
To the U.S. Government:
11. Support the early start of negotiations between
the Iraqi government and the KRG on the status of
disputed internal boundaries and a federal
hydrocarbons law and provide full financial and
diplomatic backing to UNAMI in mediating stakeholder
talks.
12. Use military assistance (equipment and training)
as leverage to press the Iraqi government and the
KRG to refrain from unilateral steps in disputed
territories, including by army and Kurdish regional
guard units or by issuing oil and gas contracts; and
strengthen mechanisms aimed at improving
communications and security cooperation to reduce
chances of violent conflict.
13. Announce and reaffirm publicly its policy of
advising international oil and gas companies not to
sign contracts for acreage located in disputed
territories, and persuade those that have signed
such deals to suspend all operations in disputed
territories until the status of internal disputed
boundaries has been resolved.
Baghdad/Erbil/Washington/Brussels, 19 April 2012
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