While the Kurdistan Regional Government remains unable to resolve its differences with Iraq over the oil sector, its cooperation with Turkey is expanding. Today, the Atlantic Council's Ross Wilson and David Koranyi examine the implications for energy exports from the region.
Overshadowed by the Syrian civil war, rising violence in Iraq, and recent turmoil in Turkey, another problem is simmering in the Middle East. Iraq’s Kurdistan Regional Government (KRG) recently reported that a long-mooted new oil pipeline to Turkey should be completed within months. By making possible oil not controlled by the Iraqi central government, this new pipeline and what it represents pose risks for Erbil’s relationship with Baghdad and for Turkey and its ties with both the KRG and the Iraqi government of Prime Minister Nouri al-Maliki. They also pose a test for Washington, which has repeatedly urged the factions in Iraq to agree on a nationwide hydrocarbon law and development scheme and weighed in with the Turks and Kurds to delay unilateral steps that would prejudge that effort and be seen as disregarding Baghdad. The parties seem likely to continue to tread in a largely careful manner, and their dance may go on for some time before it reaches a conclusion.
According to media reports, KRG Natural Resources Minister Dr. Ashti Hawrami told a conference in London on June 19 that the KRG aims to complete work on a new oil pipeline to Turkey by the end of September. The line, which will have a capacity of 300,000 barrels per day, aims to create an independent route for Kurdish oil exports to Turkey and world markets beyond. Shipments through an existing pipeline controlled by the Baghdad government that runs from Kirkuk in Iraq to Ceyhan on the Turkish Mediterranean coast were halted last December. The KRG has been reduced to shipping small amounts of oil to Turkey on trucks. The rest of its production has been stranded at home, where it nets a fraction of the prices available on world markets.
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The KRG’s determination to deliver oil to international markets is a function of economic need and the opportunity represented by its immense reserves. These have been estimated at 45 billion barrels of oil and three to six trillion cubic meters of natural gas. Many of the world’s largest oil and gas companies are investing billions of dollars there, including American majors Chevron and ExxonMobil. The region’s development is not limited to the hydrocarbon sector. It is abuzz with the construction of new factories, office buildings, roads, hotels, and restaurants. Iraqi Kurdistan stands out as an island in Iraq of stability and private sector-led growth, even if uncertainties on several fronts with Baghdad are obvious liabilities.
Baghdad and Erbil have specific issues with one another over hydrocarbon development strategy, who can sign contracts, and revenue sharing, as well as the future of Kirkuk and territories disputes. Iraqi Kurds and others find noxious the monopolization of power in Baghdad around Maliki, his government’s ties with, if not dependence upon Iran, and its involvement in Syria. Many in Baghdad seem to want to bring the KRG more under the central government’s control or at least to clip its wings. Little or no progress had been made for years on the disagreements that divide the two. If stalemate on big political issues is a reason for Baghdad to stiff Erbil on energy, it almost certainly reinforces the Iraqi Kurds’ interest in going pursing separate deals both as a way to survive and to pressure the Maliki government to deal with the KRG in a more compromising way.
For its part, Turkey sees the KRG and Iraq as an important part of the solution to its energy woes. Turkey’s problematic current account deficit, which has recently ranged between 6.5 and 10 percent of the country’s gross domestic product, is roughly comparable to its energy import bill–with its rises and falls relating as much to changes in international oil prices as anything else. Ankara wants to decrease its dependence on expensive Russian natural gas and on Iran, a long unreliable energy supplier that US and EU sanctions are making more so. Iraq and its Kurdistan region are one way out of the bind. According to a 2012 International Energy Agency report, Iraq will play a pivotal role in world oil markets in the coming decades and could produce up to 8.3 million barrels a day in 2035, but only if “a resolution of differences over governance of the hydrocarbon sector… opens up the possibility for substantial growth also from the north of Iraq.” According to Hawrami, the KRG could supply up to 3 billion barrels of that.
Left to its own devices, Baghdad may have little obvious interest in accommodating Erbil or Turkey. The KRG and Turkey therefore need to give it incentives–by proceeding slowly, but also surely by taking real steps toward realizing direct energy trade connections if agreement is not soon hammered out. This is why Hawrami’s June 19 pipeline announcement was important. Turkey would like access not just to KRG resources, but also to those in the rest of the country, and it wants a friendly Iraq as well. Remarks by Turkish Energy and Natural Resources Minister Taner Yildiz while meeting with KRG President Massoud Barzani in St Petersburg were significant in that regard. Yildiz said that oil and gas production increases should not only be within the framework of KRG decisions, but that, “The Iraqi administration and all Iraqi people should decide together.”
It seems likely that Iraqi Kurdistan will continue to develop its oil and gas resources and export routes to get them out of the country, including direct ones via Turkey. The dance among Baghdad, Erbil, and Turkey over these exports and unrelated issues will also continue. The United States can be a more effective interlocutor with the parties, and especially with its ally Turkey and friends in Erbil, if it seen to put pressure on Maliki to more fully respect Iraq’s broader power sharing arrangements and, more narrowly, to pursue a compact with the country’s north that will give it energy trade latitude, while also paying homage to Baghdad’s prerogatives.
By. Ross Wilson and David Koranyi for Atlantic Council