writes Salah Nasrawi, Iraq’s Kurds have pinned high hopes on oil to fulfill their dream of independence, but oil may also be undermining it,
Iraq’s Kurds have long argued that they have nothing to lose by fighting for independence but the chains represented by Iraq’s Arabs. For decades they have been waiting for, and sometimes trying to create, the right moment to go their own way.
When Kurdistan started extracting oil after gaining autonomy following the US-led invasion of Iraq in 2003, hopes were high among the Kurds that lucrative revenues would be used to build an independent economy and help them to break away from Iraq.
This year, as the Kurdistan Regional Government (KRG) started selling its crude independently, it cut most of its ties with Baghdad and started preparing for the day when the Kurds are able to erect the political barriers that will separate them from Iraq.
The KRG was hoping to generate finance and lay the economic foundations for Kurdish independence. The region has reserves estimated at 45 million barrels and initial exports of some 320,000 barrels per day (bpd), to be raised to one million bpd next year, in addition to huge gas reserves.
But a sharp drop in oil prices in recent weeks, with market forecasts for cheaper crude for years to come, have quelled the rush to leave Iraq. The sudden slide in prices and fears of revenue decline have forced Erbil to hand over its oil to Baghdad to sell.
The trend should be familiar in oil geopolitics: history repeats itself and oil wealth shows once again that it is a double-edged sword.
Last week, Baghdad and Erbil announced that they had reached a deal to end a lingering oil and budget dispute. Under the agreement the KRG will sell 550,000 barrels of oil a day, including 300,000 from Kirkuk province, through the Iraqi state-owned Oil Marketing Company (SOMO).
In return, the government of Prime Minister Haider Al-Abadi will start sending the Kurds about $17 billion, which is their share of the national budget, and an additional $1 billion for weapons and salaries for the Kurdish Peshmerga force.
The agreement should end a year-long crisis during which the government of former prime minister Nuri Al-Maliki ordered a freeze on the KRG’s share of the national budget over an oil dispute when Erbil started selling its crude independently.
While Al-Abadi’s government put out a vague statement, saying that the agreement “has established that the oil belongs to all Iraqis,” the deal was immediately declared as a breakthrough by Kurdish leaders. Some Kurdish politicians even celebrated the deal as representing consent by Baghdad to Kurdish claims to Kirkuk and other disputed areas.
There are not enough details, however, to confirm whether or not the deal is a breakthrough. It is only a one-year agreement that will cover Iraq’s 2015 state budget and clearly states that exports will be made through SOMO’s facilities in Ceyhan in Turkey.
As expected, disagreements also soon emerged. Kurdish Deputy Prime Minister Qubad Talabani said the Kurdish government will still be able to sell its oil after it delivers the amount of oil agreed on in the Baghdad agreement, according to remarks published by the Kurdish media outlet Rudaw.
Iraq’s oil ministry, however, denied this and insisted in a statement on Sunday that the government will consider further oil sales to be illegal. Some Iraqi lawmakers want the deal to be put up for debate in parliament, a proposal rejected by Kurdish MPs.
Moreover, the deal reignited resentment among Shias in the southern provinces, which produce the bulk of Iraq’s oil. They complain that their provinces are badly neglected even though they contribute a significant amount of oil wealth to the national coffers. Angry politicians in the southern city of Basra renewed calls to turn their province into an autonomous region.
There are also more controversies surrounding the deal. Some Iraqis have pointed to complacency by Shia political groups. Though the deal was endorsed by the government, it was negotiated by Minister of Oil Adel Abdel-Mehdi, whose Supreme Iraqi Islamic Council (SIIC) maintains close ties with the Kurdish leadership.
Before the US-led invasion, exiled SIIC leaders, including Abdel-Mehdi, worked side-by-side with the Kurdish parties in the opposition’s fight to topple the regime of former president Saddam Hussein.
Abdel-Mehdi had earlier reached an understanding with the KRG that allowed Erbil to receive an initial $500 million from Baghdad in return for its starting to pump oil to SOMO’s Ceyhan export terminal. That understanding has apparently opened the way for a new deal.
Facing these charges, the SIIC did not shy away from acknowledging the apparent complacency. “If the Kurds take 100,000 barrels of oil they have given us rule over Iraq,” SIIC spokesman Baligh Abu Galal told the Dijla television station.
“Without the Kurds, we [the Shias] could not have been empowered to rule Iraq. We are strong because we rule Iraq,” he said in a rare acknowledgment of the marriage of convenience that was part of the founding principles of post-US invasion Iraq.
The question that arises is not how the new deal was reached but why it happened now. Kurdistan has battled for years to secure exports of oil away from Baghdad’s supervision and has defied all efforts by the federal government to control the crude’s flow.
The KRG is already entangled in legal battles, including a court case in Texas filed by Baghdad to block Kurdish crude exports. In response, it has filed an appeal to overturn the Iraqi requests.
In June, following advances by the Islamic State (IS) terror group and its seizure of several Sunni-dominated cities in northern and western Iraq, Kurdish Peshmergas captured Kirkuk and territory bordering the Kurdish region, taking advantage of the collapse of the Iraqi security forces.
Kurdish officials vowed that they would never give the territories back to Baghdad, and Kurdistan Regional President Masoud Barzani called on the Kurdish parliament to prepare a referendum on independence.
Kurdistan has also been pushing the United States and other foreign countries to give the Peshmergas direct military aid, rather than having them receive the aid through Baghdad.
In October, the KRG unveiled plans to find funds through foreign loans against future oil revenues. It said the loans would offset financial difficulties created by the blocking of its budget by the Al-Maliki government. But the measure was also apparently intended to create independent Kurdish financial institutions.
All these measures show that the strategy being followed by the KRG is to justify its separation by showing that Iraq’s federal system is not working. Even after Baghdad and Erbil reached agreement on oil and the budget, KRG officials continued their defiant and provocative statements.
On Sunday, the speaker of the Kurdistan parliament, Youssef Mohammad Sidiq, told the Turkish Anatolia News Agency that the region will proceed with plans to hold a referendum on independence if “the Baghdad government fails to acknowledge the Kurds’ rights.”
Barzani’s deputy, Kusrat Rasoul, also said in remarks published Saturday, “Kurdistan’s flag will be flying over every inch of Kurdistan’s territory.” This was in apparent reference to the disputed territories seized by the Peshmergas.
One must look beyond the rhetoric in the fraught relations between Baghdad and Erbil in order to figure out if the Iraqi Kurds will keep their bid for independence on high gear, or if they will concede to bitter political and economic realities.
Contrary to the idea of a prosperous economy, as depicted in media-hyped images of Erbil’s construction cranes and new housing complexes, Kurdistan’s economy remains fragile.
With little industrial, agricultural, financial or communication infrastructure, landlocked Kurdistan remains highly dependent on its two ambitious neighbours, Iran and Turkey, for trade, investment and transport. The two countries are effectively financing everything in Kurdistan, from construction to oil installations, and clothing boutiques to food products.
Most villages in Kurdistan have no electricity or running water, and there are only a few paved roads. The unemployment rate is among the highest in the region and corruption and cronyism are rampant.
It goes without saying that shortages of finance will have devastating consequences on the region’s economy, which is already on hold because of the dispute with Baghdad. This is why the Kurdish leaders might now have found that going it alone isn’t any better, and maybe is even worse, than staying in Iraq.
While the plunge in the crude prices serves as a reminder of how geopolitically significant oil prices can be, there are other factors that must have influenced the Kurdish decision to agree to a deal with Baghdad that ends their independent export of oil.
A national homeland for the Kurds in Iraq has always been a nightmare for Iraq’s neighbours, with a potentially detrimental impact on regional stability. It could lead to the division of Iraq on ethno-sectarian lines and create a ripple effect throughout the region. If that happens, oil won’t save Kurdistan from a messy and even bloody Middle East.
By signing last week’s agreement, the Kurds must have realised that they will run high risks if they continue to give the independence option priority over tangible economic interests and regional stability. That could be reason enough for the KRG to look into a different scenario, at least for now.