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Baghdad and Erbil Clash Over Oil
6.6.2012
By Denise Natali
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Al Monitor |
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Denise Natali is the Minerva Fellow at the Institute
for National Strategic Studies, National Defense
University and the author of The Kurdish
Quasi-State: Development and Dependency in Post Gulf
War Iraq.
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Read more by the Author
June
6, 2012
The Iraqi energy sector is more divided than
ever. While Baghdad insists on central government
control of the country’s natural resources, the
Kurdistan Regional Government (KRG) is autonomously
developing its own oil market. Underlying these
differences is a brewing cold war between Baghdad
and Erbil, particularly as Iraqi Prime Minister
Nouri al-Maliki consolidates power and the Kurds
attempt to check it.
Still, Baghdad is regaining leverage over Iraq’s
energy arena. Increased state oil production and
revenues, despite the mediocre results of the fourth
bidding round, have reinforced central government
authority and the means by which it can appease and
control challengers. This trend, along with the
absence of a cohesive anti-Maliki block and the
unlikelihood of a direct KRG pipeline deal with
Ankara, will further frustrate negotiation of a
national hydrocarbons law and keep Kurdish crude in
political and economic limbo.
Baghdad’s energy ambitions reflect the larger goal
of reaffirming central authority in Iraq. Despite
the ongoing chaos, security threats, administrative
bottlenecks and the KRG’s "export embargo," the
central government has increased oil production to
nearly 3 million barrels per day. Last April, it
realized its highest export level since 1990.
These developments, alongside improved economic
relations with regional and international actors,
have strengthened Baghdad’s sense of resource
nationalism and state control of energy management.
Even though major international oil companies (IOCs)
showed little interest in Iraq’s fourth energy
auction, Turkey’s state-run oil company TPAO secured
another contract with a Kuwaiti consortium, marking
its fourth investment in Iraqi fields that border or
are near Iran. These regional interests may not
raise Iraqi reserves to the levels planned, but they
affirm important state-to-state energy-sector ties.
Indeed, if Baghdad wants to further expand Iraq’s
oil and gas reserves and increase production and
export levels, then it will have to modify its
contracts and entice major IOCs to its energy
sector. Plans are already underway for a fifth
bidding round, which could be another litmus test
for potential compromise between the central
government and IOCs. Still, even if Baghdad
renegotiates profit margins it will be unlikely to
cede full ownership of oil and gas to foreign firms.
This issue remains a red-line for Baghdad, and is
embedded in the commitment to Iraqi sovereignty and
assuring “Iraqi oil for Iraqis.”
How will these trends impact the Kurdish energy
sector and Baghdad-Erbil relations?
In the short term, hardly at all. The KRG will
continue to sign its own production-sharing
contracts and attempt to bring in more oil majors to
its market. In fact, as long as the KRG can profit
from higher sign-on bonuses, partially pay IOC costs
by securing undisclosed revenues for the region
through domestic crude sales and smuggling to Iran
and continue to receive its annual
multi-billion-dollar budget from Baghdad, then it
has little to lose from the current impasse.
It is more likely that political obstacles will
emerge as the KRG attempts to navigate around
Baghdad's payment and export constraints. Not only
has the KRG’s ExxonMobil deal exacerbated tensions
with Baghdad,www.ekurd.net
but it has caused a backlash from Iraqi Arab
populations that could undermine the Kurds’
longer-term energy interests. Although some Sunni
Arab elites currently support the KRG in an anti-Maliki
alliance, local Sunni Arab groups and Iraqi
officials in southern and central Iraq have turned
toward Maliki against the Kurds. Their goal is to
protect Iraqi unity from what they perceive as
Kurdish land grabs and an over-reaching Kurdistan
Region, tied to KRG oil deals in the disputed
territories.
These challenges are particularly important because
the KRG has no viable alternative in which to
operate its energy sector other than with Baghdad.
The recent Kurdish proposal to build a direct
pipeline to Turkey may have stimulated a media
frenzy and investor confidence, but it offers no
real guarantee for independent Kurdish exports. The
verbal agreement between Turkish Energy Minister
Taner Yildiz and Kurdish Oil Minister Ashti Hawrami
to pursue shared energy interests does not translate
into official Kurdish oil sales to Turkey. Not only
is there no signed agreement, but the Turkish
minister affirmed that any pipeline plan would
require Baghdad’s approval. Yildiz also was careful
not to endorse a separate Kurdish line but rather to
fill the “current Iraqi line to a higher capacity.”
Moreover, despite the KRG’s potentially cheap energy
— or easy transshipping profits for Turkey — Ankara
has serious border-security concerns that will
ultimately shape the deals it makes with the KRG,
and the degree of Kurdish autonomy it permits. As
the PKK issue heats up in Turkey and Syria, and as
long as the PKK base remains in Iraqi Kurdistan,
this tension will become increasingly salient. Nor
are neighboring states likely to further empower the
KRG, particularly with expanding trans-border
Kurdish nationalisms and an unstable Syrian
situation.
These geopolitical realities leave the KRG, which is
fully dependent upon Baghdad for its budget, with
two viable options. It can continue to sell its
crude to local markets and truck it across borders,
or export its oil through the official Iraqi line.
The first option allows the KRG to remain largely in
control of its oil and revenues, although at about
half of official market prices and at a reduced
level. The second option could lead to larger output
and revenues, but would require some concessions on
KRG control of its energy sector and its nationalist
and territorial claims. The latter may be the least
palatable choice for the KRG at the moment, but it
has the most realistic chance of leading to a
national oil law, maximizing Iraqi energy potential
and enabling the KRG and its IOCs to fully monetize
production.
Denise Natali holds the Minerva Chair at the
Institute for National Strategic Studies (INSS),
National Defense University and author of The
Kurdish-Quasi-State: Development and Dependency in
Post-Gulf War Iraq. The views expressed are her own
and do not reflect the official policy or position
of the National Defense University, the Department
of Defense, or the US government.
Denise Natali is the Minerva Fellow at the
Institute for National Strategic Studies (INSS),
National Defense University and author of The
Kurdish-Quasi-State: Development and Dependency in
Post-Gulf War Iraq. The views expressed are her own
and do not reflect the official policy or position
of the National Defense University, the Department
of Defense, or the U.S. government.
Copyright ©, respective
author or news agency,
al-monitor.com
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