Kurdish oil rift with Baghdad - not just a case of economy but political leverage and autonomy
The Kurdistan Regional Government (KRG) and the Iraqi federal government after months of negotiations failed to find a breakthrough over the issues of oil exports from Kurdistan, revenue sharing and the national budget.
The KRG was quick to refute claims by Iraqi Deputy Prime Minister for energy Hussain alShahristani that Kurdistan had agreed to exports via SOMO, the federal government marketing vehicle. KRG spokesman Safeen Dizayee quickly downplayed such claims, “absolutely we have not reached any agreement to export oil via SOMO. The dialogue and discussions are still underway”.
Ahead of the all-important Iraqi national elections this year, Baghdad has politicised the issue of oil exports and withheld the Kurdish share of the federal budget as a show of strength.
Ultimately, it doesn’t come down to money and economics but down to control, autonomy and lack of trust. One must not forget that under the Iraqi constitution Kurdistan is only entitled to receive 17% of the budget. If 300,000 bdp or so has caused so much tension then imagine when it rises to 400,000 bpd and then the more ambitious targets set by Kurdistan of 1 million bdp by 2015 and 2 million by 2019.
Iraq reaps the benefit of over two-thirds of Kurdish output. Ironically, this is the same oil that Baghdad never really knew Kurdistan even had and is a lucrative bonus for Baghdad. The vast majority of the reserves discovered in Kurdistan have come in the period after 2003.
Does Baghdad rejoice that the national reserves have been boosted to such a large extent by Kurdish discoveries? Quite the opposite. Such discoveries have been met with doubt, lack of trust, threats and rifts. Why? Because such discoveries are literally the fuel for Kurdish independence and Baghdad loses one of the remaining nooses over the region.
What control would Baghdad have remaining on the region if they could export their own oil and receive funds in a non-Baghdad controlled bank account and actually receive much more than they ever could painstakingly get from Baghdad?
Hence, the new independent Kurdish pipeline to Turkey and the fact that 400,000 bpd is merely waiting to be sold at Ceyhan sent Baghdad’s anxiety into overdrive.
In reality, Baghdad would agree too many Kurdish terms. As already mentioned, they serve to receive the greater benefit anyway – just as long as Baghdad’s control is not compromised.
As we have seen with the failure to pay salaries and provide the regions share of the budget, Baghdad wants to be controlling the political shots. As long as Baghdad retains the upperhand then Kurdistan will be under the mercy of Baghdad.
It came as no surprise that the Iraqi Finance Ministry has warned that it could not pay Kurdish salaries unless the region resumed oil exports. Of course, Baghdad will not have a “face a liquidity crisis” as they claim if they paid from such huge funds under their control. This is just for political leverage.
Iraqi Prime Minister Nouri al-Maliki, wants to force the KRG into a deal. Withholding salaries or creating crisis in Kurdistan is a form of political blackmail to put the heat on the Kurds.
This is where the ironic twist only intensifies. There is literally millions of dollar worth of Kurdish oil ready to be sold and yet the Kurds do not have funds to pay their own salaries?
Turkey recently reaffirmed its commitment to the symbolic energy deals with the Kurds. The Kurds cannot continue to be bullied over what is their national treasure.
What Iraqi oil funds did Saddam use to build Kurdistan and boost its infrastructure? Actually, it used the oil funds to destroy Kurdistan and kill Kurds. Now, in the Iraqi democratic age, the Kurds are expected to handover Kurdish oil to boost Iraq.
This is a defining moment in Kurdish history. The Kurds dare not succumb to the wills of Baghdad again. The Kurds have played a role in the creation of the Maliki hand. After dozens of failed promises, they must think twice before any post-election agreement or future concessions in Baghdad.