Kurdish oil is headed for the United States this week, further buttressing the semiautonomous region’s economic independence as Erbil prepares for a referendum on political independence later this year.
An estimated 650,000 barrels of oil, mostly extracted from the Kirkuk field located in Kurdistan, departed the Mediterranean Sea on June 20th, according to Bloomberg data. The oil tanker’s route indicated a dash towards the American East coast, after a three-year hiatus—caused by a dispute with Baghdad over Washington’s true loyalties—ended the transatlantic shipments.
The bane of the Kurdistan Regional Government’s (KRG) existence is its relationship with the Iraqi federal government. Erbil has argued for years that it remains under-compensated for its fossil fuel assets. Those tensions rose to the surface in 2014, when Baghdad blocked Kurdish shipments to the U.S. – the region’s coveted foreign ally. The spread of the Islamic State (ISIS) necessitated international teamwork, so the blockade issue shrank in significance.
Kurdish oil is mostly marketed through the Turkish port of Ceyhan, which is linked via pipeline to oil-rich Kirkuk. SOMO, Iraq’s oil marketing agency, sells only a small portion of Kurdish crude at Ceyhan, according to local sources that spoke to World Oil. All crude sold through SOMO is shipped via pipeline to the Kirikkale refinery near Ankara, raising doubts over whether it has been approved by Baghdad.
“It does feel like a bit of a test case,” Energy Aspects analyst Richard Mallinson said regarding Neverland’s risky route to the U.S. “Whilst Kurdish oil has found its home in the market, Baghdad hasn’t seemed to want to try and challenge Kurdish exports.”
The KRG announced its independence referendum on June 8th, after convening a meeting between all of the region’s major political parties. One party, the Gorran, boycotted the summit as a rejection of the Kurdistan Democratic Party’s hegemony of Kurdish politics, but Erbil’s upper echelons largely support the referendum, slated to take place on September 25th. Related: Oil Prices Inch Higher As Saudi Crude Oil Loadings Drop
Though Baghdad is not a fan of taking any steps towards eventual Kurdish independence, rifts within the KRG government are more likely to cause the new referendum effort to fall flat. Gorran, which is the main opposition party, as well as several other smaller parties, insists that the Kurdish parliament pass legislation to codify election standards. But the KDP has not been able to hold an official congressional session for two years as opposition leaders keep lawmakers from meeting a required quorum.
The central problem here is KRG President Masoud Barzani, who refused to leave office after his term ended in 2014. Since then, Gorran and its allies have boycotted KDP-dominated Erbil, with some third parties, like the Patriotic Union of Kurdistan, occasionally entering discussions with the regional government to make quorum without Gorran. The latest round of such talks appears to be succeeding, and parliament could reopen as soon as the end of June.
A legislative mandate for the referendum requires 56 of 111 votes to pass, meaning that the KDP would need to continue making concessions to its staunchest enemies, who are convinced the vote is a ploy to increase the KDP’s popularity within the region.
Turkey – a longtime Kurdish ally for oil exports – welcomes any delay in the referendum process, in hopes that a messy independence movement would make similar initiatives unpopular amongst Turkey's Kurds.
Iraq’s Arab allies have also been inconsistent in their support of Baghdad’s control of Iraqi land. While Iran backs the federal government’s stance in keeping the country in one piece, the United Arab Emirates has offered funding to Erbil to facilitate the referendum. The Gulf states compulsively reject any position or country with Tehran’s stamp of approval, as demonstrated by the ongoing diplomatic blockade against gas-producer Qatar.
Kurdish oil is likely replacing the export reduction pedaled by Saudi Arabia earlier this month to force American refineries to draw from domestic inventories. Baghdad was quick to offer its crude to U.S. importers looking for a substitute to Saudi supplies in a bearish market. Erbil is cashing in on the same opportunity.
Despite Erbil’s external show, or test, of independence through the Neverland tanker, the success of the KRG’s referendum hinges on its ability to address its domestic governance issues. An officially sanctioned referendum is necessary for a vote to hold any sway in international circles, meaning it is crucial for current talks between the KDP and related parties to result in a legislative session that meets quorum.
By Zainab Calcuttawala for Oilprice.com
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