Latest disappointment with oil draft gives Kurds spur to break an already fragile coalition

Oil has unenviably proved as the paradoxical treasure and curse of the Mesopotamian plains. With the third largest oil reserves in the world, Iraq has the potential to become one of the most solid and prosperous economies in the world and bring with it a great standard of living for it people.

However, the gift of nature has seen it empower and finance brutal dictatorial regimes and facilitate a centralisation of power that has been used to forcefully bind Iraq’s disparate social mosaic. Whoever controlled oil had the keys to the gates of Iraq. In this light, the Sunni’s used their control of oil revenues to underpin their power and influence.

Kurdistan was severely affected by policies of exclusion and systematic negligence that saw a very limited amount of its legitimate portion of Iraq’s oil revenues spent on infrastructure. Free from the clutches of dictatorship, the Kurds were able to progress from a standing start by building new roads, hospitals, universities and various facilities.

Given a unique chance to shape the new Iraq, Kurds and Shiites were keen to leave their imprint on the Iraqi oil sector. Ironically, while Sunni’s used oil to consolidate power, the majority of Iraq’s oil wealth is actually located in the Kurdish and Shiite regions, one of the contributing factors to a sense of Sunni despair in post-Saddam Iraq.

Sharing of the cake

Iraq has had a number of significant political handicaps to overcome as it has stumbled on the transitional path to democracy. The format of a new hydrocarbon oil law has proved the most strenuous of laws to agree.

The sharing of the Iraqi cake amongst a number of diverse and embittered groups has had ramifications in a number of spheres, but none more so than in the oil law that has come to epitomise the difficult challenge of keeping all sides happy.

Striking concord on the law oil law has implications on a number of other thorny issues plaguing Iraq such as federalism, balance of power and status of disputed territories

Over four years since the original draft was rejected amidst a highly charged and animated parliament, the task of formulating a draft that would appease all parties appears as elusive as ever.

Kurdish rebuke of new law

Any hope for ratification of the new oil draft that was passed by the Iraqi cabinet and submitted to parliament, were quickly dashed as the presidency of the Kurdistan region condemned efforts to usher the new draft in parliament.

Discussions around the oil law continue to place Kurdistan and Baghdad at loggerheads with the Kurds denouncing the current draft as contradicting the principles of the constitution.

Baghdad has refused to relinquish its historic grasp on the oil industry while the Kurds are keen to explore and develop their immense hydrocarbon potential. According to the Iraqi constitution there is a clear delineation between control of new oil fields and existing oil fields.

As a largely unexplored entity, almost all of Kurdistan’s newfound wealth can be considered as newly discovered.

As the gulf between both parties has grown over oil sharing, Kurdistan has continued a unilateral development of its oil sector with the awarding of dozens of oil contracts to foreign firms to the annoyance of Baghdad that has repeatedly deemed any deals without its consent as illegal.

The stalemate has gathered pace as a number of smaller oil exploration companies have struck black gold in spectacular fashion. As further oil wells are drilled, more flow tests prove successful and more seismic data is undertaken, the strength and potential of Kurdistan swells by the day.

Gulf Keystone Petroleum (GKP) is one British company that has benefited hugely from its eagerness to jump the queue. The potential recoverable resources has seemingly increased by billions of barrels as each new well has proved a success and GKP alone stands to have anything between 7-11 billion barrels of oil on its books. Other companies have included DNO, Genel Energy, Western Zagros and Heritage Oil with degrees of success.

While Kurdistan’s rise as a respectable oil power has been historic, its quest is greatly restricted by the noose that is Baghdad.

Issues over payments to third parties, revenue sharing, transportation of oil and Baghdad’s refusal to recognise any oil contracts signed by the Kurdistan Regional Government (KRG) threatens to derail Kurdish aspirations and at the same time deepen the animosity between Arabs and Kurds.

Kurdistan has been allowed to make limited exports but payment issues have quickly limited throughput.

Whilst Kurdistan is enjoying increasing attention from major global oil giants, threats by Baghdad to blacklist firms signing contracts with Kurdistan have deterred many parties. Only recently Iraq’s Oil Ministry excluded U.S. oil firm Hess Corp from competing in the 4th round of its auction of oil fields.

Basis for political concord

Such is the Kurdish sentiment on the enactment of a balanced oil law that it has formed a key prerequisite for Kurdish support of the current coalition.

However, much like the many promises over the implementation of article 140, the lack of reconciliation on oil law has served to only antagonise the Kurds.

While Baghdad has criticised the Kurds over the awarding of oil contracts, it has continued to encourage development of its oil industry with a number of contracts already signed and a fourth round of bidding currently on the table and scheduled to be finalised by January. This is in addition three major natural gas fields that were auctioned to foreign firms last year.

Baghdad has continued to encourage major oil films while at the same time the national oil draft has gathered dust. Iraq currently produces around 2.7 million barrels of oil per day (bpd) and has an ambitious target to multiply this to 12 million bpd in less than 6 years.

Grapple for power

Although pluralist governance and federalism was a key cornerstone of the constitution, Baghdad’s attempts of solidifying central control and diluting regional powers have been evident in recent years.

As the autonomy of the Kurdistan Region has continuously strengthened, one of the remaining ‘sticks’ to wane Kurdish advancement is Baghdad’s hegemony over oil.

Many countries have welcomed the potential role of Kurdistan as a core supplier to the long-awaited Nabucco gas pipeline but it was ironically Iraq that condemned and jeopardised such motions.

Potential deals by the Iraqi oil ministry to supply gas to Europe places a further cloud on Kurdish ambitions.

At the end of the day, billions barrels of oil are facts that speak volumes. As the economic and wealth of Kurdistan expands so does its influence and strategic power. One of major factors that saw the once unthinkable visit of a Turkish prime minister was the growing economic ties between Turkey and Kurdistan as much as a political thawing.

The likes of Turkey may have been weary of Kurdish oil been used to power its independence in the past but the reward as many foreign investors have discovered is too good to miss.

In the meantime, it could be a while yet before a draft oil law is passed by parliament. The new dispute over the hydrocarbon law may at the same time strike a fatal blow to an already sick political alliance in Baghdad.

First Published On: Kurdish Globe

Other Publication Sources: eKurd, Various Misc.

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