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- The oil dispute between Baghdad and the Kurdistan Region of Iraq (KRI) is fundamentally about sovereignty, not oil.
- Iraq’s Federal Supreme Court and the proposed Unified Oil Law have cemented Baghdad’s control over oil revenues, ending the KRI’s ability to export independently.
- Turkey’s new pipeline plans, bypassing Kurdistan, aligned with China’s Belt and Road Initiative, reflect wider geopolitical shifts and efforts to marginalize Western influence in the region.
It is sometimes difficult in the multi-dimensional world of Middle Eastern geopolitics to see the bigger picture, and this has certainly been true for many looking at the ongoing conflict between the south and the north of Iraq. The most notable superficial manifestation of this in recent times has centred on the continued embargo of independent oil sales from the semi-autonomous Kurdistan Region of Iraq (KRI) in the north by the Federal Government of Iraq (FGI) in the south. However, this dispute has never fundamentally been about oil. It is instead about sovereignty. The south wants to end the semblance of this that the north still has and simply subsume it into a unified Iraq. Depriving the Kurdistan region its primary source of financing – money from independent oil sales – through multiple earlier legal challenges and latterly through the embargo is solely a means to this end. Everything else is just fluff. Last week’s new that Turkey wants new pipelines that would carry oil and natural gas from Iraq’s south – bypassing the north – is the latest confirmation of Baghdad’s ultimate objective.
Many appear to think that the genesis of the oil embargo imposed on 25 March 2023 was a breakdown in the 2014 agreement between the south and the north focused on the south paying the north a certain amount of its budget each month in return for a certain level of oil pumped in the south then being sent in return. Specifically, the original deal involved the Kurdistan region exporting up to 550,000 barrels per day (bpd) of oil from its own fields and Kirkuk via the Federal Government of Iraq’s State Organization for Marketing of Oil (SOMO). In return, Baghdad would send 17% of the federal budget after sovereign expenses (around US$500 million at that time) per month in budget payments to the Kurdistan region. This deal was agreed to by the south under intense pressure from the U.S. which had secretly promised the Kurds that they would finally gain full independence once their Peshmerga army had defeated Islamic State in Iraq, as analysed in full in my latest book on the new global oil market order. In reality, the deal was always designed by Baghdad to fail. To that end, from the very earliest phase of the deal the Federal Government accused the Kurds of continuing to sell oil independently, which it viewed as illegal. As a result, Baghdad felt empowered to withhold large portions of Kurdistan’s due budget payments at will.
The Iraqi Constitution helped Baghdad enormously in this context, having been drawn up in 2005 in such a way as to give no legal clarity on which side – the FGI or the KRI – had the rights over oil in the Kurdistan region. Iraq Constitution was unclear on the issue of which authority had power over the disputed oil flows. According to the KRG, it has authority under Articles 112 and 115 of the Iraq Constitution to manage oil and gas in the Kurdistan Region extracted from fields that were not in production in 2005 — the year that the Constitution was adopted by referendum. In addition, the KRG maintains that Article 115 states: “All powers not stipulated in the exclusive powers of the federal government belong to the authorities of the regions and governorates that are not organised in a region.” As such, the KRG maintains that, as relevant powers are not otherwise stipulated in the Constitution, it has the authority to sell and receive revenue from its oil and gas exports. Additionally, it argues the Constitution provides that, should a dispute arise, priority shall be given to the law of the regions and governorates. However, the FGI maintains that under Article 111 of the Constitution oil and gas are under the ownership of all the people of Iraq in all the regions and governorates.
That said, the true genesis of the current dispute between the two sides has nothing to do with the 2014 deal. In fact, it began on 23 April 2013 when Kurdistan’s regional government passed a bill that would allow it to independently export crude oil from its fields and those of Kirkuk if Baghdad failed to pay its share of oil revenues and exploration costs. A corollary bill to create an oil exploration and production company separate from the FGI in Baghdad and a sovereign wealth fund to take in all energy revenue was approved at the same time by the KRG’s cabinet under then-Prime Minister (and now President) Nechirvan Barzani. At that point, the KRI was producing around 350,000 bpd – out of a total 3.3 million bpd across Iraq — and planned to increase this to 1 million bpd by the end of 2015. In sum, the KRG intended the 2013 bill to give the KRI complete financial independence from the rest of Iraq as a precursor to total political independence shortly thereafter. The next phase after independent oil sales were assured by the KRI was a planned referendum on independence, as also thoroughly detailed in my latest book on the new global oil market order. The FGI correctly saw this as an existential threat to its future, given the U.S.’s promise to the Kurds regarding the defeat of Islamic State.
It was against this backdrop that a series of legal rulings by Iraq’s Federal Supreme Court (FSC) on 21 February 2024 underlined that the planned New Oil Law being worked on at that time by the government of Iraq in Baghdad would be the final agent of change aimed at ending any semblance of independence for Iraqi Kurdistan. To begin with, the FSC ruled that the Kurdistan region was compelled to turn over “all oil and non-oil revenues” to Baghdad. This marked the end of any meaningful debate over whether the KRI could count on continuing independent oil sales unimpeded by Baghdad. Iraq Prime Minister, Mohammed Al-Sudani, then clearly stated that the new Unified Oil Law – run in every respect out of Baghdad – will govern all oil and gas production and investments in both Iraq and its semi-autonomous Kurdistan region and will constitute “a strong factor for Iraq’s unity”. Around the same time, a senior energy source who works very closely with Iran’s Petroleum Ministry exclusively told OilPrice.com, a very high-ranking official from the Kremlin said at a meeting with senior government figures from Iran that: “By keeping the West out of energy deals in Iraq, the end of Western hegemony in the Middle East will become the decisive chapter in the West’s final demise.”
Russia’s own key superpower sponsor, China, is also set to benefit from such a unification of Iraq. As it stands even now, more than a third of all Iraq’s proven oil and gas reserves and over two-thirds of its current production are managed by Chinese companies, according to industry figures. More specifically, Chinese firms combined have direct shares in around 24 billion barrels of reserves and are responsible for the production of around 3.0 million bpd. However, Turkey’s plan for new pipelines that bypass the Kurdistan region will also neatly augment Beijing’s broader multi-generational global power-grab plan, the Belt and Road Initiative (BRI). The new pipelines would tie into Iraq’s Strategic Development Road programme aimed at creating a seamless transport corridor running from Iraq’s flagship deepwater Al Faw Grand Port (due to be finished in 2025) in its key oil export hub of Basra in the Persian Gulf, all the way through several of its biggest oil and gas fields, and finally into Fishkabur on the Iraqi border with Turkey. From here, it will extend via road and railway links into the rest of Europe. The planned integration of the SDR with China’s BRI infrastructure would represent an alternative final part of the transport jigsaw that would see a direct land route from Xi’an into Europe. It could also function as the final alternative route in the maritime transport corridor, running from Quanzhou to Colombo in Sri Lanka and then up to Basra rather than continuing past Yemen and through the Red Sea and Suez Canal into the Mediterranean. An added geopolitical advantage for China is that Iraq’s new SDR should also be quicker and less costly than the route favoured by its key global rival, the U.S., and beginning in its key regional rival, India – that is, the India-Middle East-Europe Economic Corridor.
By Simon Watkins for Oilprice.com
The post Iraq’s Oil Embargo Was Never Just About Oil appeared first on Energy News Beat.
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