Arrow Down Arrow Left Arrow Right Arrow Up Camera icon set icon set Ellipsis icon set Facebook Favorite Globe Hamburger List Mail Map Marker Map Microphone Minus PDF Play Print RSS Search Share Trash Twitter Video Camera Youtube
Iraq and the Kurds: The High-Stakes Hydrocarbons Gambit
Iraq and the Kurds: The High-Stakes Hydrocarbons Gambit
Table of Contents
  1. Executive Summary
Post-ISIS Iraq: A Gathering Storm
Post-ISIS Iraq: A Gathering Storm

Iraq and the Kurds: The High-Stakes Hydrocarbons Gambit

The political standoff between Iraq’s Kurds and the government in Baghdad has left pressing disputes over oil and territories unresolved, intensifying the likelihood of conflict.

  • Share
  • Save
  • Print
  • Download PDF Full Report

Executive Summary

A simmering conflict over territories and resources in northern Iraq is slowly coming to a boil. In early April 2012, the Kurdistan regional government (KRG) suspended its supply of oil for export through the national Iraqi pipeline, claiming Baghdad had not fully repaid operating costs to producing companies. The federal government responded by threatening to deduct what the oil would have generated in sales from the KRG’s annual budget allocation, potentially halving it. This latest flare-up in perennially tense Erbil-Baghdad relations has highlighted the troubling fact that not only have the two sides failed to resolve their differences but also that, by striking out on unilateral courses, they have deepened them to the point that a solution appears more remote than ever. It is late already, but the best way forward is a deal between Baghdad and Erbil, centred on a federal hydrocarbons law and a compromise on disputed territories. International actors – the UN with its technical expertise, the U.S. given its unique responsibility as well as strategic interest in keeping things on an even keel – should launch a new initiative to bring the two back to the table.

Each side has its narrative, based on history, accumulated grievances and strong sense of entitlement. For now, neither is inclined to settle the conflict peacefully through serious, sustained negotiations, as each believes its fortunes are on the rise, and time is on its side. They are wrong: time is running out, as unilateral, mutually harmful moves are pushing the relationship to the breaking point, with the hydrocarbons-driven stakes and attendant emotions so high that conflict looks more promising to them than accommodation and compromise.

The two unwilling partners in an Iraqi enterprise born of colonial machinations – Arabs and Kurds – have spent 90 years in unhappy cohabitation. Kurds have waited for the moment when they will succeed in removing the shackles of an overbearing, at times highly repressive, central state. They know that when Baghdad is weak, they can take steps to bring their dream of statehood closer to reality, but that when the centre is strong it will use its superior resources to push them back into their place – or worse. This is why the Kurds are so alarmed at attempts by Prime Minister Nouri al-Maliki to amass power at the expense of his rivals and rebuild a strong state, armed with U.S. weaponry, under his unchallenged control.

Ever since arriving in Baghdad on the coattails of the U.S. invasion in 2003, the Kurds understandably have used their new position and the centre’s weakness to develop their own region. They seek to reverse a legacy of discrimination and economic neglect but also to create an escape route should relations with Baghdad sour beyond repair. Yet, in many ways, this approach contains elements of a self-fulfilling prophecy: by pressing their advantage, Kurds inevitably aggravate matters, convincing the federal government that they are aiming for secession – and aiming to take with them a good chunk of disputed territory that Kurds claim as historically part of a notional Kurdistan but that also appears to be immensely rich in oil and gas.

Perhaps most worrying to Baghdad, Kurdish leaders have lured international companies to explore and exploit the region’s suspected hydrocarbons wealth. Nor have they stopped at the Green Line that divides their region from the rest of Iraq; instead, they have signed contracts for acreage located squarely in disputed territories. The latest (and largest) to agree to play this game was ExxonMobil, which arrived on the scene in October 2011, taking six blocks, two of which, along with a corner of a third, lie across the Green Line. It thus placed itself at the heart of the conflict, potentially accelerating the centrifugal forces that are tearing at the Iraqi fabric. While ExxonMobil may have calculated that by doing so it could help bring Baghdad and Erbil to the table and effect progress on a federal hydrocarbons law, the likelier outcome is that both sides will further entrench their positions, thus increasing the chances of violent conflict. From Baghdad’s perspective, the Kurds are making mincemeat of any attempt to have a unified federal oil strategy; increasingly, it views them as untrustworthy partners in government who are seeking to break up the country.

But the Kurds face a problem. While they pursue an independent oil policy and have taken important steps toward that end by drafting their own oil law in 2007 and signing over 40 contracts with foreign oil companies without Baghdad’s input or approval, they lack the means to export their oil without Baghdad’s help and therefore its permission. To date, the federal government has used its control over the national pipeline network, as well as its hold on the treasury and budget, to rein in the Kurds’ ambitions.

Hemmed in by Baghdad and anxious to become economically self-sufficient, Erbil is turning its eyes to another potential outlet for its oil: Turkey. Masoud Barzani, the Kurdish region’s president, reportedly told foreign visitors to his mountain redoubt that if Maliki remains in power beyond the 2014 parliamentary elections, the Kurds would go their own way. Not coincidentally, 2014 is when the Kurdish region expects to complete construction of its own strategic oil pipeline, one that skirts (federal government) Iraqi territory before reaching the border with Turkey. For Kurdish leaders, economic dependency on a democratic neighbour with an attractive window on the West is far preferable to a continued chokehold by a regime displaying authoritarian tendencies – all of which raises the question of what Ankara would do if the Kurds ask it to take their oil without Baghdad’s approval.

Turkey’s main objective in Iraq has been to keep it unified. To this end, it has undertaken economic steps since 2007 that would bind the country’s various parts into an economic union, hoping that politics, especially the relationship between Baghdad and Erbil, would follow suit. It also has encouraged both sides to agree to a federal hydrocarbons law, the added benefit of such legislation being that energy-poor Turkey could import oil and gas from Iraq’s immense southern fields, as well as from the Kurdish region, coming closer to fulfilling its aspiration of becoming a major transit corridor for regional hydrocarbons. The Kurds hope, however, that Turkey’s thirst for oil and gas will align with their own thirst for statehood.

Ankara is unlikely to shift course, frustration with its neighbour’s failure to agree on oil legislation and its eagerness to purchase oil and gas from the Kurdish region notwithstanding. Ideally, it would import Kurdish products without jeopardising its relationship with Baghdad, though that seems beyond reach.

The Kurds have not lost hope. As they see it, a regional crisis – such as war between Iran and the U.S. or the break-up of neighbouring Syria – might constitute a game-changing occurrence, persuading Ankara to risk its relations with Baghdad in exchange for energy security and a stable (Kurdish) buffer against an unpredictable, possibly chaotic, suspiciously pro-Iranian and increasingly authoritarian Arab Iraq. But such scenarios might not unfold and, for a multitude of reasons, one must hope they do not. The answer to the current impasse, in other words, is not to wish for a cataclysmic event with potentially devastating repercussions for all. It is not to bank on the central Iraqi government surrendering resource-rich territories it deems its own and has the means to hold on to by force. And it is not to gamble on a radical move by Turkey toward a separate deal with the KRG when Ankara has its own, deep-seated fears concerning a potentially newly invigorated Kurdish population on its own territory.

For Baghdad and Erbil, reaching a deal will be very difficult. But the alternatives surely would be far worse.

Baghdad/Erbil/Washington/Brussels, 19 April 2012

Post-ISIS Iraq: A Gathering Storm

The Islamic State’s defeat is looming, and with it a host of diverse challenges overshadow Iraq’s future, ranging from outright confrontation between Erbil and Baghdad to the demobilisation, disarmament and reintegration of myriad armed groups previously involved in the anti-ISIS campaign. In this excerpt from the Watch List 2017 – Third Update early warning report for European policy makers, Crisis Group urges the European Union and its member states to support the Erbil government to exit the current political crisis and encourage security sector reform in Iraq as a whole.

This commentary is part of our Watch List 2017 – Third Update.

With the military defeat of the Islamic State (ISIS) drawing near, Iraq faces dramatic new challenges. On 16 October, Iraqi federal forces marched onto Kirkuk, helped by a deal with one of the Kurdish parties, and retook the city and Kirkuk’s oil fields. The action was prompted by a referendum on Kurdish independence staged by the Kurdistan Regional Government (KRG) on 25 September within its territory and in areas disputed with Baghdad. The “yes” vote was overwhelming, and thus held out the threat of eventual secession. In its aftermath, the government of Prime Minister Haider al-Abadi saw the need to reassert Iraqi sovereignty over the disputed territories, including Kirkuk, ahead of (still unscheduled) legislative elections next year. This is because of an intra-Shiite competition that has been unfolding in Baghdad, involving military and political factions with longstanding ties to Iran that were empowered by the fight against ISIS. The Kurdish-Arab standoff and the intra-Shiite rivalry intersect and reinforce each other.

The involvement of a plethora of armed groups in the fight against ISIS, alongside state agencies that respond to different chains of command, has created a hyper-militarised environment that further undermines Iraq’s already weak legal framework. Political actors jockeying for power in the post-ISIS environment may be tempted to exploit this fragmentation and to expand their leverage by pushing toward further escalation. To prevent a collapse of Iraq’s post-2003 political system, substantial reforms are required. The EU can play a key role in such an effort. While the anti-ISIS campaign operated primarily on the military level and was largely conducted in the framework of the U.S.-led coalition, the next steps involve areas where the EU has strong expertise and capacities, namely reconstruction and security sector reform.

A messy governing and security framework

Despite its military achievements, the anti-ISIS campaign has had the unintended effect of arming and training security forces that operate outside formal institutions in both Iraq and the Kurdistan region. Western countries’ largely unconditional military support and lack of a common and clear political roadmap for the post-ISIS period have not helped. The control that various militarised groups exercise over parts of the country challenges Baghdad’s authority and sovereignty. Without conditionality, reconstruction aid to ravaged areas may be hijacked by the militias that control them, further entrenching their rule, with adverse effects for the return of internally displaced persons (IDPs) and governance.

Baghdad-Erbil: From standstill to standoff to violence

The Kurdish independence referendum raised the Kurds’ expectations of statehood while severely damaging relations between Erbil and Baghdad. It led Baghdad to shift from a lukewarm-cooperative to an openly confrontational approach as a way to show resolve in defending Iraq’s territorial integrity. Abadi felt he could move to regain control of the disputed territories because he realised he had the support of both Iran and Turkey (an ally of the KRG until the referendum), as well as the U.S. All three were angered by Barzani’s rejection of their repeated requests that he agree to delay the referendum. The challenge now will be to return to political talks about the future of the disputed territories; settling the internal-boundary question will be critical to bringing long-term stability to these troubled areas.

A blocked political system

Political tensions and institutional weakness will remain endemic as long as Iraq fails to reduce corruption and refresh a leadership that has ruled since 2003. To shore up declining popular support, leaders engage in confrontational rhetoric and strategies, exacerbating ethnic and sectarian tension and inviting external interference. This stands as the largest obstacle to addressing outstanding issues, such as the conflict between Erbil and Baghdad, the Sunnis’ crisis of representation, and the broken trust in Iraq’s legal framework, institutions and formal politics. In particular among young Iraqis, this adds to the urge to either join armed groups or leave the country altogether. (See Crisis Group MENA Report N°169, Fight or Flight: The Desperate Plight of Iraq’s “Generation 2000”, 8 August 2016)

An EU role in reshaping the post-ISIS period

At its June 2017 Foreign Affairs Council the EU reiterated its commitment to support Iraq during the post-ISIS period. Beyond responding to the immediate humanitarian crisis, the EU should seek to tailor this support in ways that help address the underlying causes of the current political malaise, notably the corruption and dysfunction of the Baghdad government, the corruption and succession quarrel within the Kurdistan regional government, the crisis of Sunni representation, and the Baghdad-Erbil standoff. Through its upcoming EU Strategy for engagement with Iraq and subsequent action, the EU should pursue:

Humanitarian and reconstruction aid as part of a political strategy: EU assistance should be guided by the overarching political goal to transform a militia-dominated environment into more effective governance by state institutions. To this end, aid and reconstruction should aim to break local communities’ security and financial dependence on the various militia leaderships that emerged from the anti-ISIS campaign. Local governance institutions linked to and funded by the central state or the Kurdistan regional government should be partners of first choice. Strengthening those institutions may also make it possible to integrate local armed factions (of Sunnis as well as minority groups) into the local police and other security forces, thus breaking Shiite militias’ monopoly over security, which has fuelled resentment and could reignite support for jihadists who are currently lying low. In the disputed territories, EU reconstruction assistance could be conditioned upon acceptance by both Erbil and Baghdad of a renewed UN-led process (see below) to resolve the questions of these territories’ status and the sharing of revenues generated from the oil extracted there. The way forward should include a return to a shared security mechanism between Erbil’s peshmerga ministry and Baghdad’s defence ministry in the most sensitive areas.

Reorganisation of the security sector: In the post-ISIS phase, the EU should assist Iraq and the Kurdistan region in integrating chains of command and bringing the range of formal and informal armed groups under the purview of the Iraqi security forces and the Kurdish peshmerga ministry. Through its new Advisory Mission for security sector reform (EUAM), the EU can contribute its member states’ extensive experience in this field to enhance efforts by other international actors (NATO, UNDP) to help the federal government and Kurdistan Regional Government reorganise their respective security forces. In particular, the duties and purview of various security bodies (Counter-terrorism Forces, Iraqi Army, National Police, Kurdish peshmerga forces and Kurdish Asayesh security police), as well as the status of new outfits such as the Shiite militias, need to be defined.

Leadership regeneration: Post-ISIS stabilisation also hinges on a renewal of the political leadership in Baghdad and Erbil by committing both capitals to free, fair and timely elections. Thanks to its established network in civil society organisations, the EU can encourage the participation of new political actors by engaging in leadership training for members of informal, non-violent protest movements, who have challenged the political elite in the recent past, and identify new youth-led civil society groups and volunteer organisations – even if they have emerged under the umbrella of, or enjoy ties to, the Shiite militias – and facilitate their integration into local governance institutions and established political parties.

Iraq’s Territorial Integrity. The EU should use its diplomatic and economic weight to help revive negotiations between Baghdad and Erbil over the Disputed Internal Boundaries (DIBs) question. Settling the endemic instability in these areas is crucial to both sides regardless of the ultimate disposition of Kurdistan. Talks should be led by the UN Assistance Mission in Iraq (UNAMI) based on its important but still unused 2009 study and proposals on that subject. To this end it should work to refocus UNAMI’s mandate (through a Security Council resolution). This is also an issue that Turkey, a support of the earlier UNAMI effort, has found of great interest and would almost certainly wish to engage Erbil on.