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Iraq: Baghdad, Kurds At Odds Over Oil Deals

(RFE/RL) November 30, 2007 (RFE/RL) -- The last few weeks have witnessed bitter exchanges between the Baghdad government and the Kurdistan regional government (KRG) over oil deals signed between the Kurdish administration and several foreign firms. Since the Iraqi Kurds passed their own oil law in August, they have signed 15 exploration contracts with 20 foreign firms.

These deals have enraged Iraqi Oil Minister Husayn al-Shahristani, who has repeatedly referred to them "illegal" and insisted that the Oil Ministry was the only institution with the authority to sign oil contracts. He issued a warning on November 15 that any foreign firm that signed deals with the KRG will be barred from doing business with the federal government in the future -- a threat that carries significant weight, since the majority of Iraq's oil reserves lie in its massive southern oil fields.

On November 24, he ratcheted up the pressure on the Kurds and called the deals "null and void." To counter the KRG's own oil law and lacking a national law, al-Shahristani insisted that he would use legislation from the Saddam Hussein era to strike deals with foreign firms.

In response to the criticism, Kurdish officials described the deals as legally sound and in line with the Iraqi Constitution. In fact, CNN reported on November 27 that KRG Natural Resources Minister Ashti Hawrami, ahead of a U.S. tour, said that the KRG is expecting to sign exploration-and-production contracts with 20 foreign companies by the first half of 2008.

Kurds Reliant On Baghdad

While the rhetoric between the Baghdad government and the KRG has reached a fever pitch, in the end, the Kurds are heavily dependent on the central government to export its oil. The Kurds may able to sign contracts with foreign firms, but they need a reliable and secure access route to export their oil. Essentially landlocked and with Baghdad in control of the Umm Qasr port in the southern city of Al-Basrah, the Kurds have to look north.

The most obvious choice would be the existing oil pipeline from northern Iraq to the Turkish port of Ceyhan. However, only the Baghdad government has an export deal with Ankara and al-Shahristani announced in an interview with Monte Carlo Radio on November 23 that Iraq's neighbors would prevent the Kurds from exporting their oil.

Cutting off export routes for the Kurds could force them to resort to smuggling oil through overland routes, which would be illegal, risky, and ultimately expensive, if the shipments were to be lost or confiscated. Moreover, firms would probably be put off from signing any contract if a clear, and more importantly, legal export route was unavailable.

In addition, Turkey is wary of the KRG's motives and their quest for greater autonomy. Ankara only wants to deal with Baghdad directly and avoid any contact with the KRG, for fear of encouraging greater Kurdish independence, which it fears could encourage Turkey's own sizable Kurdish population to seek greater autonomy.

Iran and Syria also have significant Kurdish population and they too may choose to only deal directly with the central government in Baghdad.

Political Pressure May Bring Compromise

Political pressure may be the force that ultimately pushes the Kurds to relent and compromise with the Baghdad government over the deals. A group of 60 Iraqi oil professionals sent a letter to the parliament on November 26 in support of Oil Minister al-Shahristani's stance against the KRG deals, referring to them as a "deliberate and dangerous action" by the KRG that lacked any "legal or political standing whatsoever." They also accused the Kurds of disregarding the "opinions and reservations of the other political blocs" as they unilaterally signed the deals.

However, the KRG deals and the animosity that they have so far generated could also complicate Iraq's ability to pass a comprehensive national oil law. The law has been mired in the Iraqi parliament for over a year amid bitter divisions between political factions, and the Kurds' deals will only make those discussions more difficult.

After the KRG signed a production-sharing contract with the U.S.-based Hunt Oil Corporation in September, U.S. State Department spokesman Thomas Casey described it as a hindrance to a national oil law. "It's in the interest of everyone in Iraq to see a national set of laws governing the oil and gas industry...we don't think that these kinds of deals are helpful."

Indeed, the United States may be pressed to prod the Kurds into softening their position, since many observers believe that the passage of a national oil law is one of the key issues that will help foster national reconciliation.

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