Turkey on the frontline of Iraq's Kurdish oil row
By Selen Tonkus, Sunday, March 23, 2014
ANKARA - A move by Iraq’s Kurdish Regional Government to export 100,000 barrels of oil per day through Turkey is a tactical move brought about by U.S. pressure which could change after April 30 elections in Iraq, experts have told Anadolu Agency.
Baghdad has been opposed to the export of stored Kurdish oil from Turkey's south-eastern port of Ceyhan on the accusation that it violates Iraq’s constitution as it would bypass the country’s national oil company, SOMO.
Currently, 1.5 million barrels of oil are sitting in Ceyhan -- which has a total of storage capacity of 2.5 million -- and are awaiting Baghdad's approval to be exported.
The KRG has been embroiled in a long-running row with the central government in Iraq over a proposed 17 percent share from oil revenues. The dispute has lead to political boycotts by Kurdish MPs over Iraq’s draft budget with the KRG refusing to withdraw demands, claiming it could never receive its fair share of oil wealth.
Talks between Irbil and Baghdad have so far failed to find a solution.
However, in a sudden move, following a phone call on Thursday between KRG President Masoud Barzani and U.S. Vice President Joe Biden, Kurdish authorities revealed that they would accept the export of 100,000 barrels of oil per day through SOMO from April 1 as a "gesture of goodwill" while negotiations for a permanent deal with Baghdad continued.
Now Turkish, Kurdish and American experts have given AA their analysis on the dispute’s likely outcome.
Ali Semin, from the Istanbul-based think-tank BILGESAM, said the decision was a result of intensified mediation last week by Biden and U.S. ambassador in Baghdad, Stephen Beecroft.
"The United States aims to see Kurdish oil revenue being collected in an American bank instead of a Turkish one," Samin said.
Turkey sought to use state-owned lender Halkbank to deposit revenues from northern Iraqi oil exports, while Baghdad wanted the revenue to go to its existing account at the Federal Reserve Bank of New York. The recent KRG decision means that SOMO will manage the exports, which by extension means that the revenue will go to the U.S. bank. There will be a Kurdish sub-bank account into which the KRG’s share of revenues will be automatically deposited.
According to Semin, another strong reason behind the KRG's coming to terms with Baghdad was over Turkey's persistent position of not exporting the stored oil without Baghdad's approval.
"Please note that the decision also came after KRG Prime Minister Nechirvan Barzani's visit to Turkish Prime Minister Erdogan in Ankara on March 16," he emphasized.
Semin said the decision should be seen as an accommodating move to ease the likely tense atmosphere in Iraq following the country’s April 30 general election.
When asked for his prediction on a permanent solution to the oil issue and possible repercussions for the agreement with Turkey, Semin said the only solution would be the export of Kurdish oil via SOMO but to raise KRG's 17 percent share to a more satisfying level.
"This way is also beneficial for Turkey, because it saves itself from being dragged into Iraq’s internal issues," Semin said, adding: "The KRG has no other country to seek support [from] in the region, but Turkey."
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Kurdish oil expert and head of consulting at London-based Carduchi Consulting, Shwan Zulal, also noted that the reason behind the KRG's decision was U.S. pressure as Brett McGurk, U.S. deputy assistant secretary of state for Iraq, was also in the Kurdistan region recently.
"But the foundation of the deal is shaky and it is hard to imagine that it will last, given this has been agreed in the past with Baghdad and all fell apart again," Zulal cautioned.
Since 2009, the KRG has sought to sell its oil several times via SOMO but Baghdad has obstructed the Kurdish authorities in many ways. In 2010, Baghdad and Irbil agreed on 19 issues to allow current Iraqi PM Nouri al-Maliki a second term in power. These included resolving the oil issue with legislation in a way to enable Kurds to sell their product and receive a regular 17 percent share from Baghdad. However, this agreement was never fully implemented.
When asked about how Turkey could be impacted by the new KRG move, Zulal said Ankara will not be affected negatively and will receive payment in the form of transit fees.
He added that if Prime Minister Erdogan's government sustains its decisiveness on the deal following March 30 elections, the November 2013 KRG-Turkey agreement might again be on the table.
Dr. David Romano, associate professor at Missouri State University’s political science department, who is also a columnist on the Kurdish region’s Rudaw newspaper, said this interim agreement reflects budgetary pressure exerted by the Maliki government on the KRG.
Iraq failed to approve its 2014 budget due to a political boycott by 57 Kurdish deputies after the KRG’s 17% share was not included.
Romano said Maliki will present it as a victory to his constituents, which is important ahead of the upcoming election.
"The Kurds, on the other hand, are probably calculating that they can wrest recognition of their own full control of their hydrocarbons from Baghdad when Maliki will not need to look so tough to his voters, but will likely need Kurdish support to form a new government," noted Romano.
After the election, the KRG will undoubtedly intend to drive a hard bargain aimed at securing immediate gains, rather than the vague promises Maliki offered them in 2010.
About the likelihood of the success of the new deal, Romano said the sub-account into which the KRG would receive its share of oil revenue would still be vulnerable to Baghdad not making the deposits as automatically as it promises.
"It also remains unclear whether or not the operating expenses and revenue share of the international oil companies [IOCs] producing in Kurdistan region will be included in the share that is deposited in the sub-account," said Romano, noting that this has been a major sticking point in the past.
Nevertheless, said Romano, the KRG can also claim a victory of sorts: "if one thinks back to just a few years ago even the contracts they signed with IOCs were contested by Baghdad.
"Today if Baghdad continues to accept the oil they produce, it implicitly accepts the legitimacy of those contracts," adding that the issue today is about the control of exports and bank accounts rather than the contracts, which is a major change really."
About the Turkey-KRG deal, Romano said: "With an interim, temporary agreement, I imagine the deals will go forward in an interim, temporary manner.
“The more Turkey gets used to receiving KRG oil, of course, the more likely it will be willing to receive it independently of Baghdad's consent should it come to that one day."
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