Oil vs Kurdish independence
Iraqi Kurds pinned high hopes on oil to fulfill their independence dream. Too bad oil is undermining it, writes Salah Nasrawi
Iraqi Kurds have always argued that they have nothing to lose by fighting for independence but the chains of 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 invasion of Iraq in 2003 hopes were high among Kurds that lucrative revenues would be used to build an independent economy and consequently help them to break away from Iraq.
This year as the Kurdistan Region Government started selling its crude independently it cut off most of its ties with Baghdad and started preparing for the day when Kurds will erect the political barriers that would separate them from Iraq.
With an estimated reserve of 45 million barrels and initial export of some 320,000 bpd, to be raised to one million bpd next year, in addition to huge gas reserves, the KRG was hoping to generate finance and laying economic foundations for Kurdish independence.
But a sharp drop in oil prices in recent weeks with market forecasts for cheaper crude for years to come has pushed excitement to leave Iraq to ebb. The sudden slide in prices and fear of revenue decline has prompted a different scenario and forced Erbil to handover its oil to Baghdad for sell.
The trend should be familiar in oil geopolitics. History repeats itself and oil shows again it’s a double edged sword.
Last week Baghdad and Erbil announced that they 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 Kurds’ about $17 billion which is their share in 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 when 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 after Erbil started selling its crude independently.
While Al-Abadi’s government put a vague statement saying that the agreement “has established that oil belongs to all Iraqis”, the deal was immediately declared as breakthrough by Kurdish leaders. Some Kurdish politicians even celebrated the deal as consent by Baghdad to Kurds’ claims to Kirkuk and other disputed areas.
There are not enough details to confirm if 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 emerged soon. Kurdish Deputy Prime Minister Qubad Talabani said the Kurdish government would still be able to sell its oil after it delivers the amount of oil agreed on in the Baghdad agreement, according remarks published by Kurdish media outlet Rudaw.
Iraq’s oil ministry, however, denied that and insisted in a statement Sunday that the government will consider further oil sales as illegal. Some Iraqi lawmakers wanted the deal to be put for debate in the parliament, a proposal rejected by Kurdish MPs.
Moreover, the deal reignited resentment among Shia 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 Basra renewed calls to turn their province into an autonomous region.
There are even more controversies surrounding the deal. Some Iraqis have pointed to complacency by some 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 maintains close ties with the Kurdish leadership. Before the US invasion, exiled SIIC leaders, including Abdel Mehdi, worked side by side with the Kurdish parties in the opposition fight to topple Saddam Hussein’s regime.
Abdel Mehdi had earlier reached an understanding with the KRG which allowed Erbil to receive an initial $500 million from Baghdad in return for the KRG starting to pump oil to SOMO’s Ceyhan export terminal. That understanding has apparently opened the way for new deal.
Facing these charges the SIIC did not shy away from acknowledging complacency. “If Kurds take 100,000 barrel of oil they have given us the rule of Iraq,” SIIC spokesman Baligh Abu Galal told Dijla television station. Without Kurds, we (Shia) 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 the post-US invasion Iraq.
Still, the question that arises is not how the new deal was reached but why it happened now. Kurdistan has battled for years to secure exporting its oil away from Baghdad’s supervision. It defied all efforts by the federal government to control the crude’s flow. The KRG is already entangled in a legal battle, including a court case in Texas filed by Baghdad to stanch the Kurdish crude exports. In response, the KRG has filed an appeal to overturn the Iraqi request.
In June, following the advances made by the Islamic State terror group and its seizure of several Sunni-dominated cities in northern and western Iraq, Kurdish Peshmergas captured Kirkuk and huge swathes of territories bordering Kurdish Region, taking advantage of the collapse of the Iraqi security forces.
Kurdish officials vowed that they will never give the territories back to Baghdad. Kurdistan Region’s President Masoud Barzani called on the Kurdish parliament to prepare a referendum on independence. Kurdistan also has been pushing the United States and other foreign countries to give the Peshmergas direct military aid, rather than having them received through Baghdad.
In October, the KRG unveiled plans to find funds through foreign loans against future oil revenues. Though it had justified the loans to deal with financial difficulties created by the blocking of its budget by the Al-Maliki’s government, the measure was apparently intended to achieve independent financial institutions.
If any, all these measures show that the vigorous strategy followed by the KRG is to break away 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 defying and provocative statements.
On Sunday, speaker of 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 Kurds’ rights.” Barzani’s deputy Kusrat Rasoul said in remarks published Saturday that “Kurdistan flag will be flying over every inch of Kurdistan’s territories,” in reference to the disputed territories seized by the Peshmergas.
But one must look beyond rhetoric in the fraught relations between Baghdad and Erbil to figure out if Iraqi Kurds will keep their bid for independence on high gear or they will concede to the bitter political and economic realities. Contrary to the idea of a prosperous economy depicted in media-hyped images of Erbil’s construction cranes and new housing complexes, Kurdistan’s economy remains fragile.
With little industrial, agricultural, financial and 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 from construction to oil installations and from clothing boutiques to food products.
Most villages in the Kurdistan have no electricity or running water, and the region’s overall infrastructure is lacking with few paved roads. Unemployment rate is among the highest in the region and corruption and cronyism are rampant.
It goes without saying that shortage of finance will have devastating consequences on the region’s economy which is already put on hold because of the dispute with Baghdad. This is why Kurdish leaders might have found out that going it alone isn’t any better, and maybe worse, than staying in Iraq.
While the plunge in the crude prices serves a reminder of how geopolitically significant oil prices can be, there are other dominant factors which must have influenced the Kurdish decision to agree to a deal with Baghdad that bans their independent export of oil.
A national homeland for Kurds in Iraq has always been a nightmare for Iraq’s neighbours with a detrimental impact on regional stability. It will lead to the division of Iraq on ethno-sectarian lines with a ripple effect throughout the region. If that happen, oil won’t save Kurdistan from a messy and even bloody Middle East.
By signing last week’s agreement Kurds must have realized 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 enough reason for the KRG to try to look into a different scenario, at least for now.