There has been much excitement in recent days among those who know nothing much worth knowing about the issue that the long-running ban on oil sales from the Kurdistan Region of Iraq (KRI) to Turkey may be lifted soon. Supposedly, the government of the Erbil-based semi-autonomous region of Kurdistan (the KRG) and the Baghdad-based Federal Government of Iraq (FGI) have agreed on a new mechanism for oil exports from the Kurdistan Region to the Turkish port of Ceyhan. Under the agreement, 50,000 barrels per day (bpd) will be reserved for domestic use within the Kurdistan Region, with the remainder to be delivered to the FGI’s State Oil Marketing Organisation (SOMO) for export. In reality, there are several major problems with this deal, not the least of which is the fact that Turkey has not agreed to it.
It should be remembered that it was Turkey in the first place that shut down the key crude oil pipeline that runs from Kirkuk in Iraq to Ceyhan in Turkey (the Kirkuk-Ceyhan pipeline, also known as the ‘Iraq-Turkey Crude Oil Pipeline’, ITP) on 25 March 2023. At that point, Turkey was pumping around 450,000 barrels per day (bpd) of Iraqi oil, including around 370,000 bpd of Kurdish crude, via this pipeline to Ceyhan, as detailed in full in my latest book on the new global oil market order. It shut it down after the International Chamber of Commerce (ICC) ordered Turkey to pay the Federal Government of Iraq around US$1.5 billion in damages for unauthorised exports between 2014 and 2018. This judgement was the latest move after the Federal Government of Iraq filed for ICC arbitration in 2014, alleging Turkey’s complicity in enabling oil exports from the Kurdistan Region without the consent of Baghdad. The ICC ruled that the Federal Government of Iraq should indeed have the right to exercise control over crude oil exports at Ceyhan and ordered Turkey to pay 50% of the discount at which the Kurdistan Region had sold the oil. The original amount claimed in this regard by the Federal Government of Iraq in Baghdad was US$33 billion, which was reduced by the ICC to the current US$1.5 billion.
The settling of this international legal impasse remains the key to unlocking the resumption of oil flows for the Kurdistan Region, and it can legally only be resolved between the government of Turkey and the Federal Government of Iraq -- which does not involve in any way, shape, or form, the Kurdistan Region. Consequently, the only question worth asking relating to this situation is: ‘Does Turkey and/or the Federal Government of Iraq want the Kurdistan Region to be able to sell its oil through its key export route, the ITP?’ Or to put it another way: ‘Does Turkey and/or the Federal Government of Iraq want the Kurdistan Region to continue to exist with any form of independence?’ “Ankara knows that the [Iraqi] Kurds want full independence and that the money coming from oil exports is their means to achieve this,” a senior energy industry source who works closely with Iraq’s Oil Ministry exclusively told OilPrice.com last week. “It [Ankara] also knows that if the Iraqi Kurds get this [full independence] then it is likely to spark similar demands from Turkey’s own big Kurdish population [around 18% of its population], which could well feature a stepping up in aggressive actions across the country that would be supported by the newly independent sovereign state of Kurdistan, or whatever they call it,” he said. “This is exactly why Turkey went in so hard after the [Iraqi Kurdistan] independence referendum,” he added. “And it is also exactly why Turkey has said that any new agreement between it and the Federal Government of Iraq that replaces the 52-year-old agreement it terminated last month should be for ‘full usage’ of the ITP, which Ankara knows is an impossible demand,” he underlined. Indeed, this would involve 1.5 million bpd through the pipeline, while around 80% of Iraq’s total 3.5 million bpd goes in the opposite direction to Asia.
In this context, September 2017 saw Iraqi Kurdistan hold a referendum on whether it wanted full independence from Iraq, as also detailed in my latest book. This vote had effectively been promised to it by Washington as a reward for its Peshmerga army playing a pivotal on-the-ground role in combating the rampant Islamic State’s rise across the region. Although the referendum was not legally binding, the fact that over 90% of the electorate voted in favour of full independence caused alarm bells to ring not just in Baghdad, but in Ankara – and Tehran – too, with Iran also having a sizeable Kurdish population (around 15% of its total). Almost immediately after the referendum result had come in, Turkish President Recep Tayyip Erdo?an threatened to invade the Kurdistan Region of Iraq and added – even back then – that Turkey could cut off Kurdistan’s crude oil flow through the ITP. As a corollary of this, Turkey’s then-Prime Minister, Binali Yildirim, reiterated that his country had agreed to deal exclusively with the Federal Government of Iraq over exports of the crude oil sourced in the Kurdish region. Iran’s reaction was equally robust, with Major General Yahya Rahim Safavi – then a top military adviser to Iran’s Supreme Leader Ali Khamenei – calling on ‘the four neighbouring countries to block land borders’ with the Iraqi Kurdistan region.
The Federal Government of Iraq itself also wasted no time in showing what it thought of the idea of any meaningful independence for its Kurdistan Region, with then-Prime Minister Haider al-Abadi beginning by calling the vote ‘unconstitutional’. He added that on this basis Baghdad would take control of official border crossings linking the Kurdistan Region with neighbouring countries and restricting international flights to and from the region’s Erbil and Sulaymaniyah airports. Additionally, Iraq’s parliament was mandated by al-Abadi to send troops to the disputed oil-rich region of Kirkuk – over which the Federal Government of Iraq maintained it held sovereignty, despite it being recaptured by Kurdish Peshmerga troops in 2014 – and called on “neighbouring countries and countries of the world” to stop buying crude oil directly from Kurdistan, and only to deal with the Federal Government of Iraq in Baghdad. This built on earlier statements by al-Abadi that the Oil Ministry must mobilise all its legal resources to prevent all ships in the future from off-loading all crude oil exports by the Kurdistan Region, to any destination, after several incidents in which Kurdish oil had been loaded onto tankers for export. Baghdad’s current view on any independence for the Kurdistan Region – including its current semi-autonomous position – was made crystal when Iraqi Prime Minister, Mohammed Al-Sudani, stated that the new unified Oil Law -- run, in every way that matters, out of Baghdad -- will govern all oil and gas production and investments in both Iraq and the Kurdistan region and will constitute “a strong factor for Iraq’s unity”.
As of right now, a “new understanding has been reached between Turkey, Iran, and Iraq pertaining to the Kurdistan Region of Iraq and the degree of authority the Kurds can exercise there,” according to the Iraq source last week. “From Baghdad’s perspective, the KRG has shown itself to be unreliable in its adherence to previously agreed arrangements on sending oil to Baghdad in exchange for budget payments, so the Federal Government has no real interest in continuing with any such deals over time,” he said. “Iran sees the KRG as a de facto puppet of Washington that repeatedly has gathered intelligence for DC on Iranian-linked paramilitary groups, so Tehran has no interest in the KRG continuing to exercise any power at all,” he added. “And Turkey has similar issues with the KRG using the Kurdish groups in Southern Turkey as an instrument to extract concessions from Ankara regarding pipelines, oil, money, and the reining in of their army units,” he said. Consequently, he outlined, at a series of high-level meetings in April and May of this year on the issue of the KRG and its future status, the following was agreed between Baghdad, Ankara and Tehran. First: “On the issue of oil and other minerals in the [Iraqi Kurdistan] Territory, it is in the interest of the Triangle [Federal Government of Iraq, Iran, and Turkey] to support the authority of Baghdad as the supreme authority in issuing oil licenses, overseeing production and distributing the revenues.” Second: “The Triangle agrees to support Baghdad in exerting its full authority in maintaining borders with Turkey and Iran, and the Kurdistan region will no longer be entitled to conduct and control border-related activities.” Third: “Any newly discovered energy and lithium in the Territory will be managed through the authority of Baghdad, including all previously signed agreements by the KRG.” And fourth: “A new agreement with Baghdad will decide the share of the KRG from oil and other natural resources.”
By Simon Watkins for Oilprice.com