Oil dispute exacerbates stalled Baghdad-Kurdish tensions

Baghdad (AFP) – Iraq’s oil wealth is reigniting tensions between federal authorities and the autonomous Kurdish region, in a row that could jeopardize vital industry and drive investors away, analysts say.

The long-simmering dispute came to a head in February – at a time of political stalemate in Baghdad – when the Federal Supreme Court ordered Kurdistan to hand over oil extracted from its territories to federal authorities.

Earlier this month, a commercial court in the Iraqi capital canceled contracts between Kurds and foreign companies, after the oil ministry in Baghdad filed a legal complaint.

Authorities in Arbil, the capital of Kurdistan, have cried foul, accusing Baghdad of exerting “unfair pressure” on them and announcing their own legal action.

Iraq, the second largest producer in the Organization of the Petroleum Exporting Countries, has huge oil reserves and revenues from the sector fuel 90% of the federal government’s budget.

It exports an average of 3.3 million barrels of crude oil per day (bpd), while production in Kurdistan stands at just over 450,000 bpd.

The February ruling declared a 2007 law passed by Arbil to regulate oil and gas to be unconstitutional.

But analysts say politics plays a major role in the conflict in Iraq, whose political barons have failed to agree on a president and prime minister since parliamentary elections in October. .

President of the Autonomous Region of Iraqi Kurdistan Nechirvan Barzani (right) met with Iraqi Prime Minister Mustafa al-Kadhemi in Erbil SAFIN HAMED AFP/Dossier

“When it comes to oil, each side uses its respective powers like carrots and sticks depending on the political atmosphere of the day,” said Bilal Wahab of the Washington Institute for Near East Policy.

“At times when there was political agreement, the courts were pretty quiet. When there was political discord, however, the reverse was true,” he told AFP.

– ‘Marinated reputation’ –

The cancellation of oil contracts between the Kurds and four international oil companies (IOCs) from Canada, Britain, Norway and the United States in early July inflamed the conflict.

“The fact that Baghdad is driving CIOs out of Iraqi Kurdistan does not serve to show Iraq as a major producer welcoming foreign investment,” warned Yesar al-Maleki, an analyst at the Middle East Economic Survey.

Kurdistan's oil production stands at just over 450,000 barrels per day
Kurdistan’s oil production stands at just over 450,000 barrels per day Safin HAMED AFP/File

In a response, the Kurdish regional authorities initiated legal proceedings against the federal government in June.

A trial targets Oil Minister Ihsan Ismail, accused by the Kurds of having tried to “intimidate” foreign firms operating in the Kurdistan region in northern Iraq.

The Kurdish autonomous government accused Baghdad of taking “illegal” and “politically motivated” measures.

For Wahab, Kurdish and federal government officials do not realize “how much they are damaging the overall reputation of Iraq’s energy industry”.

“Questioning the sanctity of contracts…adds legal risk to a host of other regulatory and governance risks that plague Iraq’s energy industry,” he added.

The dispute, he said, “pushes back much-needed foreign investment.”

Oil revenues are essential for Iraq, a country facing widespread corruption but also mired in a financial crisis and in need of funds to rebuild its infrastructure after decades of conflict.

‘Compromise’?

Despite legal actions, Kurdistan says it is open to a negotiated solution.

It is working to create two companies specializing in oil exploration and marketing that would coordinate with Baghdad, a government spokesman in Arbil said.

Baghdad’s oil ministry, meanwhile, scored a small victory after oil giants Baker Hughes, Halliburton and Schlumberger pledged not to initiate new projects in Kurdistan.

Baghdad has fought to regain control of production from Kurdistan's lucrative oil fields since the autonomous region began trading oil independently more than a decade ago
Baghdad has fought to regain control of production from Kurdistan’s lucrative oil fields since the autonomous region began trading oil independently more than a decade ago ALI AL-SAADI AFP/File

The ministry says the companies are also working to “liquidate and close out” existing contracts.

Baghdad has fought to regain control of production from Kurdistan’s lucrative oil fields since the autonomous region began trading oil independently more than a decade ago.

But under an ongoing deal, the Kurdish region is delivering 250,000 barrels a day to Baghdad, in exchange for a share of federal funds to pay the salaries of Kurdish civil servants.

In recent weeks, tensions have risen further after a series of unclaimed rocket attacks targeting oil and gas facilities in Kurdistan.

Experts say the attacks are aimed at putting pressure on the Kurdistan Democratic Party (KDP), the largest in Kurdistan.

The KDP is allied with Shiite leader Moqtada Sadr, whose bloc won 73 seats in October’s elections, making it the largest faction in the 329-seat parliament.

The party is targeting the Iraqi presidency for one of its members, although traditionally the post has been held by a member of the rival Patriotic Union of Kurdistan.

“The chronology of events makes it clear that this whole crisis started because the KDP took the side of the Sadrist movement (…) in opposing the Iranian-backed Shia coordination framework,” said Maleki.

He expects a “compromise” to be found to resolve the oil conflict because “Iraq is a country of compromise”.

“Until then, the Supreme Court’s decision will hang like the sword of Damocles over the Kurdish regional government,” he said.

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