20.03.2014 Author: Konstantin Orlov

Iraq, Kurdistan and “Oil Dialogue”

HBO 15Iraqi Prime Minister Nuri al-Maliki assailed the country’s parliament with a harsh criticism, accusing it of delaying important laws, and threatening the “politicians and statesmen” with the Federal Court. He also announced the decision of the Council of Ministers to adopt the budget for the current fiscal year, regardless of its approval by the Parliament.

Among other things, the difficulties with the new fiscal budget are due to disagreements of the central government with Iraqi Kurdistan. First of all, this concerns the quotas for the distribution of the big money the country receives from production of the “black gold”. As it is known, the Iraqi constitution provides that 17% of the federal budget will go to the Kurds, which must be paid within a year. Nevertheless, Baghdad often uses the budget as an effective trump card in disputes with the Kurds.

The fact is that all this time the Kurdistan Regional Government has firmly maintained its intentions to start major oil exports to Turkey, referring to the country’s constitution. Baghdad insists that oil export revenues should come through its state oil marketing organization, the SOMO, but the Kurds want to see it only as an observer.

Baghdad is trying to reduce its dependence on oil export in the Kurdish direction, to some extent, and is desperately looking for other directions. Iraqi media reported that the government had recently approved the construction of an oil pipeline running from Basra to Aqaba, stressing that Iraq was carefully examining all possibilities for expanding its cooperation with Jordan. The work on designing the pipeline, worth about $18 billion, was launched in Iraq nearly a year ago. In the first stage, it is planned to export one million barrels of oil per day through the 1,680-kilometer pipeline running from Basra to the port of Aqaba in Jordan. We should recall that about 2.3 million barrels per day are produced just in the Basra area, which is 70% of the total oil production in the country.

On the other hand, until recently, Iraqi Kurdistan has supplied only oil, but now, large-scale preparatory work for the production and export of gas is being carried out there. Currently, gas reserves of Kurdistan are estimated at 2.83 trillion cubic metres, which is about 90% of all Iraqi reserves.

According to the economists, due to the growth in gas production and exports from Iraqi Kurdistan, we should expect a significant replenishment of the world natural gas market. First – because of the extensive fuel reserves, second – because of the proximity to major markets, third – due to the extremely low cost.

As an effective tool of exerting pressure on the Kurds, this time Iraqi Prime Minister ordered the withholding of the enclave’s “oil share” in the national budget. In turn, the President of Kurdistan Massoud Barzani called this an equivalent to a “declaration of war”.

In response to the freezing of the budget, the Kurdish government is considering possible response measures such as blocking of the two major rivers carrying water to the vast agricultural lands in central and southern Iraq. Some Kurdish officials in Kirkuk also called for a suspension of the exports of Kirkuk oil, which is sold by the Iraqi government.

Baghdad claims that the payment of the budget was suspended due to the Kurds’ failure to perform their obligation to export 400,000 barrels of oil per day, which allegedly led to a budget deficit. This assertion was denied by Erbil. According to BasNews, the Kurdistan Regional Government (KRG) has denied reports about exporting oil to Turkey, stressing that until now, Kurdish oil has not been sold.

Safin Dizayi, the KRG representative, said that reports of smuggling of Kurdish oil to Turkey are false. “A number of media have published reports accusing Kurdistan of oil smuggling to Turkey. We started an investigation of this matter and have concluded that they were unfounded”. He also states that the KRG remains committed to transparency and being accountable to Baghdad for sales of its oil to world markets. “That is why we reject these reports,” added Mr. Dizayi.

In his speech at the forum called the “Navigation of Challenges in the Middle East”, Massoud Barzani expressed his serious concern about the violation of the constitutional rights of Kurdistan. Speaking about the persistence of Shiites in their attempts to retain their power in Baghdad, Barzani said: “The idea of the central government has lost its validity for us.” Without naming Mr. al-Maliki, the Kurdish President said that the decision to deprive the Kurds of their part of the budget was the decision of one person. “We are concerned that Baghdad uses the livelihood of Kurdistan as a trump card, and which is the decision of one person. Now the thing we feared the most, has actually happened.”

Many political analysts have expressed quite a reasonable opinion that Erbil and Baghdad should try to resolve their differences peacefully, through negotiations. “The differences cannot be resolved overnight,” wrote the Iraqi newspaper Al-Rafidain. “However, if each side is going to stand its ground firmly, we will never reach a solution.”

Apparently, the recently improved relations with Turkey give additional power to the Kurds in their dispute with Baghdad. The parties stressed at the meeting of the President of Kurdistan Massoud Barzani and the Turkish Foreign Minister Ahmet Davutoglu, held in Erbil on March 5 – that “they are very happy with the state of relations between Turkey and the Kurdistan Region, and are ready to further strengthen their political, economic and cultural ties.”

It should be noted that it is no mere coincidence that the Minister of Foreign Affairs of Turkey was among the senior politicians who gathered at the forum “Navigation of Challenges in the Middle East”. He praised the efforts of his government to make peace with the Kurds in Turkey, saying that the Kurds and Turks were full citizens in his country, and that the ruling “Justice and Development Party” (JDP) helped to open Kurdish television and radio broadcasting, despite strong criticism from other Turkish parties. Last year Ankara and the Kurdistan Workers Party (KWP) began their peace process, the progress of which was estimated as being too slow by the Kurds.

Davutoglu said economic and trade relations were an important tool for building strong relations between the peoples of the region, and that Ankara was committed to maintaining good neighbourly relations with both Iraq and Kurdistan.

If the Kurds managed to normalize their relations with Turkey to some extent, then it is likely that the difficult oil issue will be settled with Baghdad, sooner or later. While publishing an article on the temporary stalemate in budget distribution, the newspaper Al-Rafidain stated: “Iraq has a large budget and everyone, including Kurdistan, should benefit from it.”

Konstantin Orlov, political observer, exclusively for the online magazine “New Eastern Outlook”.


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