The Dirty Politics of Oil in Iraq

Sectarian violence and rampant extremism are pushing Iraq perilously close to the brink of civil war. As the government rains down airstrikes on Anbar province, attempting to regain control over the militant-controlled towns of the west, Prime Minister Nouri al-Maliki has turned his eyes northwards, as Kurdistan’s defiance of Baghdad grows stronger with each passing day. Tensions have always existed between the central government and its semiautonomous counterpart, but with the Kurds now pumping hundreds of thousands of barrels of crude oil to buyers in Turkey through an unsanctioned pipeline, it’s possible that Kurdish defiance has gone one step too far.

Image courtesy of Trevor MacInnis, © 2005. Some rights reserved.

Image courtesy of Trevor MacInnis, © 2005. Some rights reserved.

The Turkish pipeline is at the epicentre of the controversy.  Completed in the final days of 2013, it is expected to have transported over 4 million barrels of oil from Kurdistan to Turkey by the end of February. If all goes as planned, Kurdistan could be exporting over 300,000 barrels of oil per day by the end of 2014. The problem? Baghdad condemns these oil exports as ‘illegal’ and a violation of the state constitution, which designates the ability to enter into oil contracts as the exclusive right of the Federal State Oil Marketing Organisation. If this logic holds, then Kurdish oil is smuggled oil, and any purchaser is implicated in the illegal theft of national resources. The Kurdish Regional Government (KRG) has bitten back, and pointed out that the federal constitution also affirms the right of the Kurdish people to exploit and export all natural resources found on and under their soil.

The question of independent oil exports is not a new one. For the past few years, Kurdistan has been trucking oil by road to neighbouring countries, where it has been sold onto the international market. Official figures put the amount of oil trucked to Turkish ports last year at 60,000 barrels per day. The federal government has long-threatened the Kurds with economic sanctions and lawsuits, but has struggled to move beyond angry rhetoric — until now. The oil pipeline has been a game-changer. With independent Kurdish exports set to increase six-fold, Baghdad can no longer ignore the political shockwaves that this revenue is going to send through the pair’s fragile union. It’s possible that the economic windfall that Kurdistan is set to receive will reinvigorate separatist movements in the region. A more pressing concern for Baghdad is that the federal budget is the only card it has to play when it comes to controlling the Kurds. An economically self-sufficient Kurdistan would have no reason to play by Baghdad’s rules and could become so politically belligerent, that the government would effectively lose all control over the only stable and prosperous region in the country. The loss of political capital to Prime Minister al-Maliki would be staggering. To lose the west to armed militants is damaging. But to lose the north to the political cunning of the peace-loving Kurds would be crippling.

So Baghdad is striking back. The federal government has hired a team of lawyers, charged with the job of finding and suing any foreign company that dares to purchase Kurdish oil. The message from the government has been clear: “This is not a game. Anyone who buys this oil is doing something illegal”. It is too early to tell whether Baghdad will follow through with its threats. However, the fact that every single barrel of oil piped from Kurdistan in 2014 currently sits unsold in a warehouse in Turkey cannot be ignored. It is likely that would-be buyers have been scared off by the threat of legal action, unwilling to be the first to call Iraq’s bluff.

Not taking any chances, Iraq has also devised a second strategy to ensure the neutralisation of the Kurdish problem. The country’s draft budget for 2014-15, of which Kurdistan is entitled to 17%, includes a stipulation designed to cripple to the Kurdish economy, should they continue with their unsanctioned exports. The budget requires the Kurds to export 400,000 barrels of oil per day – almost two times the region’s current production capacity – with any shortfall being deducted from the Kurdish share of state revenue. If passed and enforced, the budget could decimate economic prosperity in the region and leave Kurdistan heavily in debt to the federal government.

With the two sides on a collision course for conflict, the United States has continually pledged its allegiance to Baghdad, with U.S State Department spokeswoman Jen Psaki affirming that “our position has long been that we believe that all of these [oil] contracts and any revenue should go through the central government”. The refusal to support Kurdistan is many ways counterintuitive, as the region stands out as a bastion of hope and prosperity in a turbulent corner of the world. When the US Invasion was met by wave after wave of insurgents in Iraq, Kurdistan was the one region where troops were actually greeted as liberators. Whereas Iraq reported 1840 violent deaths in January, Kurdistan reported 0. With the region’s tight border security and favourable climate to foreign investment, it comes as a contradiction that Kurdistan’s peace is also its undoing. The separatist movement that would surely accompany economic independence would risk pushing Iraq back into civil war. Increased belligerence on behalf of the Kurdish government, would risk a loss of cooperation in security manoeuvres in the north. Some may argue that it is entirely rational that the US would not support any policy that would endanger the fragile unity of Iraq and its people. The sceptic in me also wonders whether the US may be trying to cover its mistakes by standing by the Iraqi constitution which it helped draft. This ambiguous and contradictory document has led both sides to believe that they alone have exclusive control over oil resources, a right at which they will stop at nothing to defend.