26/6/2014
Kurdistan Region's independent oil pipeline. Photo: Rudaw
ERBIL, Kurdistan Region— It’s no secret that Iraqi Kurdistan is running short on cash six months after Baghdad stopped sending money to the region, cutting off the region’s main source of revenue. Banking on oil sales to pay bills, Kurdish officials are leveraging newly expanded oil fields and diminished confidence in war-torn Iraq to draw financing from the international community.
Yesterday, Kurdistan Regional Government (KRG) Minister of Natural Resources Ashti Hawrami told Reuters that the region expects to export 1 million barrels per day by the end of 2015, including crude from Kirkuk.
Major fields in Iraq’s disputed territories — many of which are now under Kurdish control, including Kirkuk — are set to increase the KRG’s share of oil wealth and make the region even more lucrative to international investors.
One minor hurdle will be increasing its pipeline capacity, currently at 300,000 barrels per day. Energy experts estimate Kurdistan would need to export 450,000 barrels per day for oil revenue to match Kurdistan’s share of Iraq’s national budget.
The major caveat is that Hawrami promised any oil revenue would be shared with the central government, which has been locked in disputes with the autonomous region over hydrocarbon exports for years now.
There are two potential outcomes. The first is that the Kurdistan Region bargains with Baghdad and gains official permission for independent oil exports. The second is that no agreement is reached, and the KRG looks for down payments on future deliveries of oil international buyers. The latter would require buyers to bet against the resurgence of a strong Iraq by ignoring Baghdad’s warnings that Kurdish oil can only be purchased with the central government’s approval.
Before the Islamic State of Iraq and Syria (ISIS) took Mosul, Iraq filed for arbitration against Turkey and its state-owned pipeline for facilitating the sale of crude oil from Iraqi Kurdistan without Baghdad’s permission.
Although the case is not expected to be ruled on soon, Iraqi officials threatened to sue and blacklist any oil buyers who purchase without Baghdad’s permission, which would likely deny them future access to larger fields in southern Iraq. Until recently the tactic worked, leaving one tanker full of Kurdish oil stranded off the coast of Morocco.
Buyers seem to be less intimidated by Baghdad ever since militants captured Mosul, Iraq’s second largest city. The Iraqi military quickly crumbled in the face of a mounting insurgency, and it’s doubtful that many Sunni-dominated areas will be back in government control anytime soon.
According to Turkish and Kurdish officials, $200 million in revenue from Kurdish pipeline oil has now reached Turkey’s state-owned Halk Bank, although the buyers have not been announced. The first cargo has been offloaded in Israel, a country that would never recognize lawsuits from Iraq. The two countries have officially been at war since Israel’s creation in 1948.
In the absence of an agreement or international aid, the pace of Kurdish oil sales needs to accelerate. Baghdad hasn’t sent money to the KRG in six months, and $200 million doesn’t make a dent in the region’s mounting debts. Even the $3 billion in loans Hawrami claims the KRG has secured amount to less than half of what the federal government owes the region.
A day before the ISIS and their allies drove the Iraqi military out of Mosul, KRG spokesman Safeen Dizayee stated the region needed approximately $1 billion for the monthly budget.
Since then, several factors have dramatically increased spending. At least 300,000 refugees have arrived from Mosul, deepening a humanitarian crisis in a region already filled with refugees from Syria and Anbar.
The Peshmerga now must to protect a 1,000-kilometer border they share with ISIS and Baathist insurgents. The region has expanded by 40 percent now that the Peshmerga control the disputed territories, and the KRG must pay salaries, ensure basic services and offer security.
The Ministry of Finance has declined to comment on the budgetary crisis, but Gareth Stansfield, a former United Nations advisor to Iraq, estimates that these factors may have pushed monthly costs up to $1.5 billion. Despite the increase, he is optimistic that regional and international partners won’t let the KRG go broke.
According to Stansfield, the crisis “draws Turkey even closer to Erbil.” Turkey needs to ensure oil from Iraqi Kurdistan is exported for the sake of its own energy security, and Iraqi Kurdistan also serves as a territorial buffer against ISIS.
“The choice is relatively simple for the international community, and especially the Americans. They really want to protect Kurdistan and endure that it remains stable domestically,” Stansfield says. “The Americans need to give them $1.5 billion a month, or they let the money earn the money themselves at $100 million a tanker. It’s a difficult argument to push back on.”
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