Kurdish oil flow raises the stakes for Maliki

A new oil pipeline built by the autonomous Kurdistan Regional Government (KRG) has infuriated Baghdad. But with elections approaching compromise might be necessary.

Iraqi prime minister Nouri Al Maliki in Baghdad on May 11, 2011. Ahmad Al Rubaye/AFP Photo

Nouri Al Maliki may have to soften his opposition to a new Kurdish oil pipeline if he wants Iraqi Kurds to support him for a third term as Iraq’s prime minister.

Running from the Taq-Taq oilfield in the autonomous territory ruled by Kurdistan Regional Government (KRG) to the border with Turkey, the pipeline allows Iraq’s Kurds to sell their oil on international markets independently of Baghdad.

Oil began flowing through the pipeline in early January, a move that infuriated the central government, which wants control over all energy exports.

But a general election scheduled for April 30 gives the Kurds the political leverage to extract concessions from Mr Al Maliki, since he is likely to need their support to continue in office.

With oil flowing through their new pipeline, the Kurds’ position has been strengthened in their battle with the central government for control of energy resources.

“If the Iraqi Kurds become kingmakers again in the upcoming Iraqi elections, Baghdad might change their policies since they will need the Kurds for the government formation,” said Wladimir van Wilgenburg, a Middle East analyst for the Jamestown Foundation in Washington.

In past elections, Iraq’s Arab political parties were unable to form governments without entering into a coalition with the Kurds, who first gained autonomy in 1970.

Currently facing a rebellion by Sunnis in the western Anbar province, Kurdish support is especially important for Mr Maliki's Shiite-led administration.

“I think it’s very much likely that Maliki has decided to let it be, even if he’s outspoken, to have the Kurdish support for the next government,” said Maria Fantappie, Iraq analyst at the International Crisis Group. “Then, when there is a deal, try to rearrange the energy security issue with the Kurds.”

To keep Mr Maliki from reneging on any pre-election promises, the Kurds are driving a hard bargain.

After securing the backing of international investors, the KRG built their pipeline and connected it to part of the existing pipeline infrastructure running to Turkey.

The KRG “dug up the dormant half of the twin Kirkuk-Ceyhan pipeline, blocked the end coming from government of Iraq territory, and commenced to tie in their own newly built pipeline spur to it,” said David Romano, a professor of Middle East Politics at Missouri State University.

The oil is now being stored at the Turkish city of Ceyhan, poised to be sold on international markets. While Ankara has said it will wait for Baghdad's approval before the oil is sold, it has angered the Iraqi government by transporting the oil on behalf of the Kurds.

“Baghdad wants to be in full control of any oil company operating in Iraq, including in the KRG, while the KRG prefers an autonomous oil policy which would include exporting oil and gas and signing their own contracts with foreign oil companies,” Mr van Wilgenburg said.

The flow of oil to Turkey was a signal to Baghdad that the KRG was going forward with oil exports even if the “legality is ambiguous,” Mr Romano said.

In retaliation, Baghdad has threatened to pursue legal action against companies that buy the Kurdish oil. It also threatened to cut the KRG's 17 per cent share of the national budget, unless it sends the proceeds from sales of 400,000 barrels per day to Baghdad. The amount is well above the current 300,000 bpd capacity of the new pipeline.

On Tuesday, the Iraqi deputy prime minister Hussein Al Shahristani reiterated the threat at a conference in London.

“Any oil that leaves Iraq without the permission of [the Iraqi state marketer] is illegal and Iraq will have to take action to protect its oil wealth,” Mr Shahristani said.

“We have informed Turkey and the KRG that we cannot allow this to continue ... We are waiting for a response to our latest proposal.”

Mr Shahristani also said Baghdad was in "very serious" discussions with the KRG over the dispute, with the Kurds claiming they will begin selling the oil by the end of January.

Baghdad fears Iraq’s other oil-producing provinces could also demand greater autonomy and does not want to cede control of profits from oil exports.

Yet the brinkmanship, followed by little action, appears to reflect how tightly Baghdad’s hands are tied.

With the oil already flowing and Mr Al Maliki needing coalition partners, a deal is “very likely either just before the elections or soon after”, said Mr Romano.

Last week, a KRG delegation visited Baghdad and offered proposals for revenue sharing, according to local media. While there was no agreement, the KRG prime minister Nechirvan Barzani said there “is a serious tendency to reach a solution” from “Baghdad and certainly from our side”.

The Kurds need the funds to pay the peshmerga, a Kurdish militia, compensate victims of deposed dictator Saddam Hussein's attacks on the Kurds, and for international companies – including the UAE's Dana Gas – which are collectively owed hundreds of millions of dollars for their work in northern Iraq.

“If Baghdad doesn’t pay, they will get the revenues themselves,” said Mr van Wilgenburg.

* with additional reporting by Reuters and Dow Jones