Saturday, July 10, 2010

Kurdistan Admits To Smuggling Oil To Iran

Trucks heading from Kurdistan to Iran smuggling oil

In May 2010 the Kurdistan Regional Government’s (KRG) Natural Resource Minister Ashti Hawrami told the New York Times that the Kurds were illegally smuggling oil to Iran. The Times reported that thousands of trucks crossed the border from Kurdistan to Iran a day, with each holding up to 226 barrels. Hawrami said that only surplus refined products like fuel were being sent to Iran after Kurdistan’s domestic needs were met. The goods were made at 70 unlicensed mini-refineries in the KRG, Ninewa, and Tamim. He claimed that the profits from the trade were used to pay Norway’s DNO and a Chinese-Turkish consortium Ttopoco who were owed around $1 billion for exporting Kurdish oil in 2009 for several months, but who were never paid for their work due to a dispute between the KRG and Baghdad. Hawrami went on to say that the leftover money was deposited in a bank account, whose future would be negotiated with the central government. The Minister conceded that crude oil and other refined products were being smuggled from Tamim and Salahaddin, but that the KRG had nothing to do with that. The trade began in the 1990s when Iraq was under United Nations sanctions, and has been an open secret ever since then

Other Kurdish officials had a slightly different story. One said that the profits were first split between the ruling Kurdistan Democratic Party (KDP) of KRG President Massoud Barzani and the Patriotic Union of Kurdistan (PUK) of Iraqi President Jalal Talabani as part of their 2005 power sharing agreement. The rest was given to oil companies in Kurdistan, and even politicians and officials in Baghdad. A member of the Change list opposition party in the Kurdistan parliament complained that the illegal trade showed that there was no rule of law within the KRG.

There is some movement to legalize this trade, but it is facing internal Kurdish opposition. KRG Prime Minister Barham Saleh wants the oil money to be deposited into the region’s budget after a percentage is paid to the central government. His party, the PUK, and the Resource Minister, who is from the KDP, are both against this idea. The smuggling is obviously an unregulated source of revenue for both parties, and it also gives the KRG leverage to use in its negotiations with the Oil Ministry over exporting petroleum. In May 2010 the Ministry agreed to allow the Kurds to export oil again, but the deal has gone nowhere since then. With the illegal trade to Iran, the KRG can say that they don’t need the government’s approval to sell oil while offering Baghdad the extra money if the two finalize their export deal.

The Kurds’ Natural Resource Minister’s interview with the New York Times was probably meant to pressure Baghdad into letting the KRG export its petroleum once again. Both sides know about the smuggling, so going public can only be for political purposes. It’s been two months since the central government agreed to renew the Kurds’ foreign sales, yet nothing has happened. The Oil Ministry said that there would be no movement on the deal until a new Iraqi government was formed. That is still months away, and the Kurds are losing patience. The Times article was a way to nudge Baghdad into action, but that’s unlikely to happen as Iraq’s politicians are much more concerned about forming a ruling coalition than Kurdish oil. That means the KRG will just have to wait until there is a new central government in place.

SOURCES

Dagher, Sam, “Smugglers in Iraq Blunt Sanctions Against Tehran,” New York Times, 7/8/10

International Crisis Group, “Oil For Soil: Toward A Grand Bargain On Iraq And The Kurds,” 10/28/08

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