Monday, July 16, 2012

Iraq’s Government Tries To Punish Kurdistan For Independent Energy Policy


The Kurdistan Regional Government (KRG) and Baghdad have gotten into another spate over their separate energy policies. The central government has cut its fuel shipments to the Kurds as punishment for their announcement that they wanted their own independent pipelines to Turkey. In turn, the KRG has begun to truck oil to Turkey in return for petrol, something Baghdad has called illegal smuggling. This new turn of events not only shows the continued differences between the two sides, but the confidence Prime Minister Nouri al-Maliki’s government now has over oil and gas.

The newest dispute started in May 2012 as the Kurds expressed interest in building their own pipelines. At an oil conference in Kurdistan, the KRG’s Natural Resource Minister Ashti Hawrami said that his government wanted to build oil and gas pipelines to neighboring Turkey. If they were to be constructed, it would be the first step towards economic independence for Kurdistan, which relies upon Baghdad for most of its money. The central government was upset with Hawrami’s speech, because it has demanded total control over the country’s oil industry and exports. In response, the Oil Ministry issued an order to stop fuel shipments to Kurdistan. Iraq’s President Jalal Talabani then met with Deputy Premier Hussein Shahristani who is in charge of Iraq’s energy policy, and supposedly talked him out of the move. On May 29, Shahristani denied any stories about ending petrol deliveries. (1) That same day, the Kurds’ Natural Resource Ministry stated that Baghdad had cut its fuel deliveries from around 70,000 barrels a day to approximately 33,000 barrels. That led the Kurdish Premier Nechirvan Barzani to threaten to export oil to acquire the petrol that it needed. This set the stage for the latest argument between Baghdad and Irbil, the Kurdish capital. The KRG has followed its own energy policy since 2002, even before Saddam Hussein was overthrown by signing independent oil deals with foreign companies. It has also been smuggling oil and derivatives to Iran and Turkey since the 1990s when economic sanctions were imposed upon Iraq for its invasion of Kuwait. This provides the region with its own source of revenue. Otherwise, it relies upon its 17% of the national budget, which in turn provides 95% of the KRG budget. With major energy corporations having returned to southern Iraq in 2009, oil production reaching the highest rates since 2003, and exports taking off as well, Baghdad now feels that it has the upper hand over the Kurds with regards to energy. That’s why it cut fuel shipments to Kurdistan. The central government is trying to flex its muscles, and punish the KRG for its constant talk about autonomy. It now feels that it no longer needs the Kurdish contribution to the petroleum industry, so it is free to retaliate against them for making statements like wanting their own pipelines to Turkey.

This issue has only escalated since May. In June, the Kurds said that they were increasing their output from their refineries, and importing fuel from Iran to make up for Baghdad’s cuts. By July, the Natural Resource Ministry claimed that shipments from the central government had been cut even more down to around 16,000 barrels a day, something that the Oil Ministry denied. That same month, the KRG announced that it was going to truck oil to Turkey in return for refined products. Kurdish officials claimed that only five to ten trucks per day were going to Turkey, an amount so small that it could not hope to make a dent in the fuel deficit it is currently going through, and denied that this was smuggling. Shahristani’s office immediately condemned the move as illegal, and claimed that the Oil Ministry had the sole right to export petroleum. Since trucks had already been passing back and forth between Kurdistan and Turkey for years, all the KRG was doing was giving official cover to what was already happening. Now they just had an excuse to justify their actions. It was all they could do since they don’t have the refining capacity to make up for the reduced flow of fuel from Baghdad.

These kinds of arguments have been going on for years. The difference now is that the central government is reacting with more than just words to the Kurds constant statements that they will not only develop their energy resources how they want, but that it could actually lead to independence one day. The reason this is happening is because Baghdad feels that its record high oil production, exports, and profits mean that it no longer needs Kurdistan’s contribution. Despite the KRG’s constant announcements that its energy field is about to see record growth as well, that is all talk, because without a deal with Baghdad it has no way to ship its products to other countries besides smuggling, because the central government controls all the pipelines and infrastructure. While a compromise over energy policy would be the desired outcome of this latest dispute, the likely result is further escalation in the near term as the Kurds show no intention of backing down from their plans, while Prime Minister Nouri al-Maliki’s government is feeling its new position of power.

FOOTNOTES

1. Rudaw, “Ministry of Natural Resources Refuses Shahristani’s Claims on Fuel Supply,” 5/29/12

SOURCES

Ali, Omar, “Shahrestani did not order to suspend petrol export to Kurdistan,” AK News, 5/29/12

Brusk, Raman, “Shahrestani suspends order to stop petrol export to Kurdistan,” AK News, 5/22/12

Daoud, Hussein Ali, “Iraqi Federal Government Plans To Lower Kurdish Oil Payouts,” Al-Hayat, 7/4/12

Hadi, Hemn, “Kurdistan starts trucking exports of oil to Turkey,” AK News, 7/7/12

Hafidh, Hassan, “Iraq Says Kurdish Oil Exports to Turkey Are Illegal,” Wall Street Journal, 7/9/12

International Crisis Group, “Iraq And The Kurds: The High-Stakes Hydrocarbons Gambit,” 4/19/12

Mohammed, Fryad, “Iraq continues to halt fuel exports to Kurdistan Region, says Erbil,” AK News, 6/18/12

National Iraq News Agency, “Oil Ministry confirmed the continuity of providing Kurdistan region with oil derivatives from Kirkuk warehouses,” 7/10/12

Rahman, Mohammed Abdul, “Baghdad halted fuel exports to Kurdistan Region due to smuggling and looting, says Kurdistan’s Ministry of Resources,” AK News, 7/2/12

Reuters, “UPDATE 1-Turkey importing crude from N. Iraq in road tankers,” 7/13/12

 Rudaw, “Ministry of Natural Resources Refuses Shahristani’s Claims on Fuel Supply,” 5/29/12

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