A consistent bone of contention between the Kurdistan Region and Baghdad has been oil resources. The heated debates around exploration rights, revenue sharing and interpretation of constitutional clauses have seen the issue go round in circles for several years.
The jostle for control of oil has only grown as oil majors have flocked to Kurdistan, ignoring threats from Baghdad, and as Kurdistan has added continual billions to its oil reserve figures. Companies continue to make discoveries in the Region with Total and Marathon only recently announcing a fresh discovery.
The reasons for Baghdad’s unease with growing Kurdish economic independence are hardly a secret. Control of oil revenues and oil infrastructure is like an umbilical cord that Baghdad has over the Kurds. With the exception of control of oil revenues and resolution of disputed territories, Kurdistan would be all but independent.
In this light, Baghdad foot-dragging over the resolution of national hydrocarbon oil laws and Article 140 is clear to see.
The national budget and share of oil revenues is currently a tap which Baghdad can use to influence and pressure the Kurdistan Regional Government (KRG). Oil production to date in Kurdistan has been stop-start at best owing to disputes.
Such is the ambition of Kurdistan that little before completion of the first historic oil pipeline to pump crude from Kurdish oil fields, a second pipeline was already actively planned for completion in 18-24 months that would drastically improve production capacity and bring the Kurds closer to their ultimate target of 3 million bpd.
With oil exports and revenues set to rise in greater Iraq, in theory so should 17% of the budget allocated to Kurdistan. If oil is equitably shared on an 83-17 split then both Erbil and Baghdad benefit. In other words, most of the Kurdish oil revenues would actually go to Baghdad.
But distribution of the national budget has been anything but clear-cut with the Kurds arguing that they receive closer to 11%, not to mention the billions of dollars in unpaid bills to foreign companies in the Region that the Kurds demand.
Independent control of oil exports puts the gloves firmly in the hands of the Kurds. While they can now achieve the 400,000 bpd or so demanded by Baghdad for share of the budget, Kurds will not be at the mercy of Baghdad – if it boiled down to it, Kurdistan could keep specific portion of its oil revenue (and any debt that it deems to have been unpaid) and only then pay Baghdad.
Baghdad has used the recent thawing of its difficult ties with Ankara to warn against any export of Kurdish crude through the new pipeline without its consent.
Ironically, as the Baghdad-Ankara ties nose-dived, the Erbil-Ankara relations were hitting new heights, underpinned by billions of dollars of trade and Kurdish strategic relevance in the changing Middle Eastern picture.
Recently, Kurdistan Prime Minister Nechirvan Barzani visited Ankara and met with Turkish officials, where the topics were likely to be expanding economic ties, oil exports and the Syrian conflict.
For now, Ankara will aim to keep Baghdad sweet by promising no to import Kurdish oil without their consent. But in reality, Turkey is already arm deep in Kurdish oil and its booming economy. It has already supported the constitutional rights of the Kurds with regards to oil exploration and the 17-83 revenue split.
Ankara may not want to alienate Baghdad, as it has recently looked to kick-start relations with Baghdad and Tehran that it strongly needs for any favourable resolution to the Syrian conflict and to avoid any regional isolation at a critical juncture.
As for the Kurds, its new oil export infrastructure literally adds the fuel for independence. However, the real game-changer would be additional pipelines independent of the Iraqi Kirkuk-Ceyhan pipeline and exclusively on Kurdistan soil and once exports reach 1 million bpd, let alone the 3 million bpd that Kurds hope for.
It’s no secret that the billions of dollars that Kurds could then acquire would far outweigh any of the 17% (or less) that Baghdad would offer. This is not to mention any potential gas exports to Europe, which would further placate Kurdistan on the world energy map (and perhaps on the map as a new found independent state)