Iraq - Kuwait - Turkey: Relations Hit a New Low

Incident: In an indication of the dangerous new low reached in Iraqi-Turkish relations, Iraq's central government has rescinded an exploration deal with a Turkey's state-run TPAO and approved a new deal for the same concession with Kuwait Energy. The concession is a 900-square-kilometer exploration block (Block 9) in south Iraq, near the Iranian border. Kuwait Energy is a Kuwaiti-led coalition with Emirati companies. Kuwait Energy will gain a 70% stake in the project, while the UAE's Dragon Oil will hold the remainder.

Right before the New Year, Asaib al-Haq-and Iraqi militia group that splintered from anti-US Moqtada al-Sadr's Mahdi Army-threatened Turkish interests in Iraq as relations worsen.

Bottom Line: Baghdad is hitting back at Ankara for the latter's interference in Iraq and its courting of the Iraqi Kurds-who are creeping towards independence on the back of oil and gas revenues. But it's hitting back in a small way for now. The bigger deals remain, despite souring relations. 

Analysis: Originally, the concession holder was a consortium led by TPAO and including Kuwait Energy and Dragon Oil. The consortium won the contract in May 2012. TPAO has been kicked out unceremoniously. Baghdad had warned Turkey in November that it would be expelled from the concession because of "non-technical issues".

What are those issues? To wit: Turkey is heavily courting Iraqi Kurdistan's oil and gas and clearly supporting Kurdish independence in doing so. Particularly sparking Baghdad's ire is Turkey's plans to build a pipeline in disputed Kirkuk that would allow the Iraqi Kurds to transport Kurdish gas directly to Turkey, bypassing Baghdad. But there have been other things along the way, like Turkey's harboring of fugitive Sunni vice-president Tareq al-Hashemi, sentenced to death in absentia by the Shi'ite-dominated government. The conflict in Syria has also pitted Iraq and Turkey on opposite sides of the divide, with Baghdad increasingly influenced by Iran.

At the same time, as recently as November, Turkey signed a $350 million deal to drill 40 oil wells in the southern Iraqi Basra area, and started talks with Baghdad on drilling 7,000 wells across the country. Will these deals be at risk as well? Not yet. They are too big. So in assessing the implications of Turkey's actions in Kurdistan-and how it lost the Block 9 concession-we have to remember that economically, there is a certain amount of pragmatism that continues to guide relations. The smaller deals will go, as part of a tit-for-tat diplomatic war between the two, but the bottom line remains clear-until the disputed Iraqi territory of Kirkuk disputes into irreversible violence.  

Washington, meanwhile, is publicly dressing down Turkey for its oil and gas activities in Iraqi Kurdistan and its blatant attempts to carve up Iraq. Washington's words, however, are meant for the Iraqi public ear and nothing else. There are some 40 US companies operating "illegally" in Northern Iraq and the US' interests here coincide with Turkey's. However, Washington is also attempting to ease the pressure with its feigned conflict with Turkey on US majors still operating, tentatively, in southern and central Iraq and at risk of losing these concessions with Baghdad.