Adding fuel to the fire? Understanding Kurdistan's oil game
Two oil tankers Minerva Joy and the United Kalavrvta seem to symbolize the future of Iraq and whether it will remain a unified entity or will break up.
In both cases Turkey and the US will play a significant role.
The two tankers are loaded with an estimated $140 million worth of oil extracted from semi-independent Kurdistan region were intended for the two US refiners Lyondell Basell NV and Axeon, but were kept offshore near New Jersey and Texas, pending judicial ruling as the central government in Iraq filed a suit against whoever buys that oil.
At the heart of this legal battle is a political dispute between the Baghdad central government and Kurdistan’s Irbil on who should control the commodity.
The Iraqi constitution written after the US invaded Iraq in 2003 though gives the central government authority on the country’s resources, but was open to interpretations. This gave the Kurds some stake.
Accordingly, an oil law that has been drafted more than seven years ago is yet to be approved by the parliament.
Given the political wrangling and infighting between various groups that led even to complaints from the Kurds that they were not receiving their fair share of the budget and eventually they opted to issue licenses to oil companies vying to get into the rich Iraqi oil reserves.
The Iraqi government continued to insist that oil contracts are prerogative of the central government and that it will par any company signing a contract with Irbil from operating in Iraq, but the lucrative terms offered by Erbil led to scores of big names led by ExxonMobil to opt for work in Kurdistan.
The foreign companies were motivated by the degree of stability in the region compared to the chaos in Baghdad and with the lucrative terms offered based on the production, sharing agreements formula.
Activities carried out by these companies managed to raise the known oil reserves in Kurdistan ten times to some 40 billion barrels.
The sticking problem, however, was and remains how to ship that oil to world markets given the fact that Kurdistan is a landlocked region and its only practical chance is to strike a deal with Turkey.
But Turkey has a Kurdish minority of its own and it always feared that enabling Kurds in Iraq to have their way will have some kind of repercussions back home in Turkey itself. In addition, both Syria and Iran also have their own Kurdish population.
Ankara allowed the Iraqi Kurds to truck some of their oil first, and then allowed for building pipeline carrying oil from Kurdistan on the assumption that it will convince Baghdad to approve such a move.
But Baghdad remained adamant in opposing any independent arrangements to ship oil from Kurdistan away from its control.
Then came the dramatic moves by the Islamic State forces in June, a move that allowed the Kurds to move in and control Kirkuk as well as other disputed areas between Baghdad and Irbil following the collapse of the Iraqi army.
Kirkuk represents a symbolic significance and by controlling it, the Kurds say that new realities are created on ground, that there will not be going back to discuss these disputed areas and more important they will vote for independence.
Again it was the Islamic State troops that threatened Erbil this time, which got a hesitant US President Barak Obama to authorize air strikes against the advancing Islamic militants and more important make a change in the country’s top leadership, where the controversial Prime Minister Nuri Al-Maliki, was replaced by Haidar Al-Abadi, who won domestic, regional and international support. Interesting to note is the pledge from Masud Barazani, leader of the Kurdistan region to work with Abadi.
Though the Obama administration adopts a policy of maintaining the unity of Iraq, while giving the Kurds greater share in the central government and in running their own affairs, but Israel has come out in the open supporting Kurdistan independence, using it contacts to change Washington’s stand and actually some Israeli companies have bought out the first Kurdistan oil cargoes.
On the other hand, the focus will be on Turkey under the leadership of its new President Recep Tayyib Erdogan and whether he will act as a midwife for the new, independent Kurdistan state or can persuade the Kurds to remain within unified Iraq. And in both scenarios oil will be the central issue as it makes the new state a viable one, a gift of oil.