How Can Iraqi Kurdish Energy Exports be Realized and Barriers Overcome?

The abundant oil and natural gas resources in Iraq’s Kurdistan region are both attractive and problematic. Hydrocarbon trade in the region has met some juridical setbacks due to a lack of consensus between the Iraq’s federal government in Baghdad and the Kurdistan Regional Government (KRG) regarding the sharing of hydrocarbon revenues. The failure to reach consensus stems from Iraq’s domestic political tensions and creates concerns among international energy investors.

Before 2003, Iraq’s oil industry had been state operated for 31 years. To allow foreign companies to invest in Iraq territories with long-term reliable contracts, legislation for the hydrocarbon sector and revenue sharing was proposed in 2007. The proposed bill would fix terms for the management and development of Iraq’s oil and natural gas resources. Iraq’s parliament has stalled the bill because federal and regional bodies did not agree on their roles and authorities regarding the management of hydrocarbon sources. The main disagreement revolved around the regulation of foreign participation and the oil and gas revenue sharing formula. The dispute derives from different interpretation of Articles 111 and 112 of the Iraqi constitution. These articles are ambiguous about how authority is shared between the federal government and regional authorities. 

In late 2007 the problem was further complicated with the KRG passing its own regional oil and gas investment law. It then signed new production sharing agreements with international companies, including Hungary’s MOL and the US’ Genel Energy and Hunt. Baghad condemned the KRG’s activities, declaring them illegal. Recently, Turkey has also made direct agreements with the KRG for the export of oil and gas. This elevated tensions among Iraq’s central government, the KRG, and Turkey’s government.

In light of this background, two questions have emerged: How will energy companies respond to the Baghdad reaction, and how far will Turkey go in its direct energy trade relationship with the KRG?

International private investors’ views at the Atlantic Council Summit in Istanbul (November 15-16, 2012) were clear and distinct. “There is nowhere in the world where such a big volume of oil will be stopped because politicians did not solve their problems,” said Tony Hayward, the CEO of Genel Energy, during the “Focus on the Kurdistan Region of Iraq: Connections, Opportunities, Issues” panel at the conference.

While investors keep ignoring these issues, others worry these tensions could grow and puts Iraq’s unity in danger. Joost R.Hilterman, the deputy program director for the Middle East and North Africa at the International Crisis Group, invited Turkey to play a reconciliatory role in the hydrocarbon revenue sharing dispute between Erbil and Baghdad. For Hiltermann, the outlook for Turkish-Iraqi and Turkish-Kurdish relations can directly impact regional energy developments. At present relations between Ankara and Baghdad are deteriorating, while relations with Erbil are improving, but in the long term it may be in Turkey’s best interest to balance out these tensions. 

Hilterman highlighted how the dilemma of Turkey sharpened the position of Nouri al-Maliki, Iraq’s prime minister, during the Syria crisis. Turkey has always supported Iraq's territorial unity. For Ankara, Iraq’s unity is a barrier against both Iranian influences and secessionist impulses among Turkey’ss own Kurdish population. However, recently a slight shift has been occurred in Turkey’s strategy. Maliki's authoritarian and sectarian actions have created a perception that he is becoming a proxy for Iran. Conversely, Massoud Barzani, the KRG’s regional president, has taken on the role of acting as a buffer, blocking the PKK from expanding its actions into Turkey. Turkey also counts on the KRG to begin trading its Iraqi oil supply.

For Hilterman, the dilemma comes from the fact the strengthening economic relations with the KRG enforces its political and economic independence. In the frame of Turkey’s domestic problems with its own Kurdish population, and the threat of the Syrian uprising extending to Kurds throughout the region, Turkey cannot even predict what Iraqi Kurdistan’s position will be in the future. Turkey faces a critical strategic choice. Advocating for reconciliation between Bagdad and Erbil and for a solution to the hydrocarbon revenues sharing law should be its priorities.

James F. Jeffrey, the US’ former ambassador to Iraq between 2010 and 2012, invited the conference’s audience not to undermine the relationship between energy economics and politics. The former ambassador argued the revenue sharing agreement would be a “win–win” solution for Erbil, Baghdad and Ankara. Turkey in any case would not support any separatism in Iraq.  Following a question from the floor, Jeffrey condemned the PKK’s acts as terrorism. “The PKK is a terrorist organization--the enemy of everyone,” he said. The ambassador concluded by saying the issue is not the unity of Iraq but how it can overcome political challenges to its unity.

Ashti Hawrami, the KRG’s minister of natural resources, agreed with the American experts’ opinions on Iraq’s unity, but clarified it. “The unity of Iraq is only possible when differences are accepted,” he told the conference. But he said he objected to declaring the problem just one for the triangular relationship between Bagdad, Erbil, and Ankara. He instead advocated for the solving the problem on the national scale, with the participation of other regional governments in Iraq. 

Concerning the revenue sharing legislation, he underlined the KRG’s official position, which is based on Iraq’s constitutional ambiguity. “We cannot act as if the new constitution does not exist. We are not in the pre-2003 time. We are keeping our relationship with Baghdad, but we also advocate for the full respect of the constitution,” he said. Hawrami concluded by underlining the KRG’s full commitment and willingness to cooperate with Turkey and its expectations for  important political change after the coming elections in Iraq. 

Olgu Okumuş