Kurds Helping Baghdad Save Face Over Oil Independence Battle

Bottom Line: There is a great amount of confusion as to the recent steps the Iraqi Kurds have taken with Turkey towards oil and gas independence from the Iraqi central authorities in Baghdad. This story can be spun in different ways-but what appears to be the reality is that the Kurds are getting what they want, and helping Baghdad maintain its dignity from the losing side of this battle.

Recommendation: The Turkey-KRG energy deal is a done deal-despite the official, purposeful "confusion." Baghdad cannot stop this momentum, and the Turks and the Kurds are keen to let Baghdad restore some of its lost dignity over the issue by affording it some sense of control, which is now the only way to resolve the crisis without a conflict.

Analysis: The big news last week was that the Kurds in the semi-autonomous Kurdistan Regional Government (KRG) finally signed a landmark energy agreement with Turkey. As usual, this announcement came with varying interpretations and predictably varying statements from officials in Ankara, Erbil and Baghdad. Some said no such agreement was actually signed; others that it was a done deal; still others that parts of the agreement have been signed off on while other parts have yet to be resolved. The deal-in whatever state it is in currently-will allow the KRG to independently export its crude oil directly to Iraq by the end of this year, via a new pipeline built for that purpose. The affirming and denying statements of officials is the result of Turkey's desire to somehow balance its new relations with the Kurds and its relations with Baghdad, which it does not wish to destroy permanently.

This week, the big news is that the Kurds have agreed to let Baghdad control the crude the KRG exports to Turkey and to manage the revenues. The details of this side deal are vague at best-and are intended to be. Baghdad will not be controlling anything, but it will at least be given the sense that it is to some extent. The plan apparently involves the KRG's use of a metering system for its exports, which will be operated by the oil ministry in Baghdad, according to Baghdad's version of this story. In addition, the Kurds have agreed to put the revenues from these exploits into a UN-administered account in order to share the revenues with Baghdad. If all goes well, we could see the Kurds resume exports through the Baghdad-run pipeline to Turkey as well, which were stopped in December over Baghdad's refusal to pay arrears to foreign oil companies who signed deals with the Kurds, bypassing the central authorities.