The new Iraqi oil law undermines the dream of Kurdish independence

The new Iraqi oil law undermines the dream of Kurdish independence

3-6-2024

With the increasing importance of the role of energy resources in the independence of countries, the oil dispute between Baghdad and Erbil cannot be viewed as a mere emergency dispute, but rather extends beyond that to political calculations related to the option of Kurdish independence and providing the infrastructure for this independence.

Baghdad – Analysts believe that the new oil law being prepared by the Iraqi government in Baghdad will be the final factor that will end the dream of independence for Iraqi Kurdistan, which in turn will affect the future of Western oil companies operating in the region. On February 21, the Federal Supreme Court ruled that the Iraqi Kurdistan Regional Government must hand over “all oil and non-oil revenues” to Baghdad.

Economist Simon Watkins says in a report published by the American Oil Price website, “This puts an end to any discussion about the ability of the Kurdistan Regional Government to continue oil sales operations independent of the federal government and the Iraqi Oil Marketing Company (SOMO).” Watkins adds, “Even if the region was able to arrange channels to achieve its goal, it would have to hand over all its oil revenues to the federal government in Baghdad, giving the central government in Iraq complete financial control over it.”

The Federal Supreme Court added that the federal government will be responsible for paying the salaries of public employees in the Erbil government, with the amount paid at the source in Baghdad deducted from the regional government’s share, and the Kurdistan Regional Government must submit monthly accounts detailing each salary paid. This is effectively a more stringent reset of the original “budget payments for oil revenues” deal agreed between the KRG and the federal government in November 2014.

The agreement stipulated that the Kurdistan Regional Government would export up to 550,000 barrels of oil per day from its fields and from Kirkuk via SOMO. In return, Baghdad would send 17 percent of the federal budget, after subtracting sovereign expenses (about $500 million at the time), monthly in budget payments to the Kurds. This arrangement was not satisfactory, as the Kurdistan Regional Government often accused the federal government of not making full budget payments, and the federal government often accused the Kurdistan Regional Government of providing incomplete oil revenues.

It was then decided to replace the deal with an understanding that could be reached between the Kurdistan Regional Government and the new federal government that was formed in October 2018. The federal government focused on the draft national budget law for 2019. This required it to transfer sufficient funds from the budget to pay the salaries of Kurdistan Regional Government employees in addition to To other financial compensation in exchange for the Erbil government handing over export operations of at least 250 thousand barrels per day of crude oil to SOMO. This arrangement did not work satisfactorily either.

The situation deteriorated in late 2017 for two reasons: The first was that September 25, 2017 witnessed a non-binding vote on the complete independence of Iraqi Kurdistan. The United States and its allies implicitly promised Iraqi Kurdistan independence in exchange for the Peshmerga army being at the forefront of the fight against ISIS. More than 92 percent of voters voted in the 2017 referendum in favor of independence. But forces from Iraq and Iran (also supported by Turkey) moved into the Kurdish region shortly after the results were announced, suppressing any further steps toward independence.

Iraq, Iran, and Turkey (countries with large Kurdish populations) cannot tolerate the repercussions of the growing Kurdish independence movement throughout the region. The second reason is Russia’s control over the oil sector in Iraqi Kurdistan through three main mechanisms. Moscow’s goal was not limited to securing large oil and gas reserves in Iraqi Kurdistan, but rather extended to sowing the seeds of destroying Kurdish independence and absorbing it into one Iraq in the long term.

It was Russia that fueled the lack of trust and escalation of discontent between the Kurdistan Regional Government and the federal government regarding the original “budget payments for oil revenues” deal for the year 2014, and this is what caused it to fail. It was the ambiguity of the phrase “oil revenues” in the Iraqi constitution that created the fault line that Moscow exploited to create chaos between the two sides.

The government in Erbil believes that it has the authority to manage oil and gas extracted from fields that were not in production in 2005 under Articles 112 and 115 of the Constitution in the Kurdistan Region. 2005 was the year during which the constitution was adopted by referendum. The Kurdistan Regional Government also confirms that Article 115 stipulates that “whatever is not stipulated in the exclusive powers of the federal authorities shall fall within the jurisdiction of the regions and governorates not organized into a region, and other powers shared between the federal government and the regions shall have priority over the law of the regions and governorates not organized into a region.” Territory, in the event of a dispute between them.

The Kurdistan Regional Government hereby confirms that it has the authority to sell its oil and gas exports and receive the proceeds from this process. The KRG also highlights that the Constitution stipulates that in the event of a conflict, priority is given to the law of the regions and provinces. But the federal government and SOMO argue that “oil and gas belong to all the Iraqi people in all regions and governorates” under Article 111 of the Constitution.

Things got worse for Iraqi Kurdistan at the end of 2021 when the United States ended its combat mission in Iraq, effectively opening the door to greater Iranian, Russian, and Chinese economic, political, and military influence in the country. It is not in the interest of any of these three countries for a pro-American Iraqi Kurdistan to exist. Moscow seems content to continue working in the fields of northern and southern Iraq, under the management of a friendly central authority in Baghdad.

Meanwhile, China is building its influence in southern Iraq, through multiple deals in the oil and gas sector that can then be leveraged into larger infrastructure deals throughout the south. The Comprehensive Cooperation Agreement was concluded between Iran and China for the year 2021. It represented an extension in the size and scope of the “Oil in exchange for Reconstruction and Investment” agreement that Baghdad and Beijing signed in September 2019, which allowed Chinese companies to invest in infrastructure projects in Iraq in exchange for oil.

That is why no one should be surprised by the statement made by Iraqi Prime Minister Muhammad Shia al-Sudani on August 3, 2023. He stated at the time that the new unified oil law administered from Baghdad would govern all oil and gas production and investments in Iraq and the Kurdistan region and would constitute a strong factor for the country’s unity.

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