The role of the oil market in the Kurdish referendum

The fight for independence in the Iraqi Kurdish region is calling the attention of the whole international community, with oil playing a particularly controversial role.
Photo: Kurdishstruggle/ CC BY 2.0 / Flickr

While Europe remains largely focused on the tension between the Spanish government and the Catalonia region after the greatly debated referendum that occurred on 1 October 2017, in the Middle East, another population is striving for independence.

On 25 September 2017, the Kurdistan Regional Government (KRG), under the leadership of Massoud Barzani, held an independence referendum. With more than 92% favourable votes, the results revealed the Kurds’ overwhelming willingness to split from Baghdad.

The Kurdish population, approximately 30 million, is often defined as the largest ethnic group without a State. Today, Kurds live dispersed among 4 different countries: Turkey, Syria, Iraq, and Iran. As a minority group, the Kurdish people have been subjected to discrimination, repression, and persecution through the centuries, evidenced particularly in the genocide against the Kurds in Iraq, and the use of chemicals weapons ordered by Saddam Hussein’s regime between 1993 and 2003.

In 1992 the KRG was established as a new autonomous Government of Kurdistan in Iraq, modelled as an independent state in a federation within Iraq with its own parliament, a military force called the Peshmerga, borders, and foreign policy. Despite a constitutional guarantee of equal rights for Kurds and Iraqis, many Kurds still feel discriminated as “second-class citizens”, as affirmed by Iraqi Kurds in an interview with BBC. Over the past few years, dialogue with Baghdad about the unification of the Kurdish majority territories have been tersely rejected by Iraq’s central government. Additionally, the dialogue has spread fear in places like Turkey, for example, where the Kurdish community of approximately 15 million is a great minority.

Domestic war over oil

In the case of Kurdish independence, oil (Iraq is the second largest OPEC producer) plays a crucial role in the negotiations with Baghdad. Additionally, Kurdistan possesses reserves equal to 45 billion oil barrels, and, according to figures from the KRG, exports are approximately 600,000 barrels per day. According to Iraqi law, revenues from oil exports must be shared between Baghdad and Erbil (the capital of the government of Kurdistan); however, Kurds claim exclusive access to the natural resources in their territory. “The relationship between Baghdad and Erbil is the biggest challenge to oil, with the Kurds using this upcoming referendum as a bargaining chip,” Renad Mansour, an Iraq expert at London-based think tank Chatham House, told CNBC. Experts say an independent Kurdistan could become a larger oil producer than Nigeria, if Iraq splits in two.

Oil market responds to referendum  

The KRG sought to develop its own oil market independent of Baghdad, calling for international investment and export contracts. Iraqi Kurdistan has been shipping oil to Turkey without Baghdad’s knowledge, and the Iraqi Prime Minister Haider al-Abadi accused the KRG of violating its OPEC obligations about oil export limits. However, the recent referendum has not shaken some other countries’ positions on oil. For example, Turkish President Recep Tayyip Erdogan threatened to shut down the pipeline through which most of the oil from the Kurdish region flows to Turkey. Moreover, he announced that he would deal only with the Baghdad government concerning oil exports from Iraq.

A week after the referendum, U.S. oil company Chevron restarted its drilling operations in the Kurdish region and the Russian oil company Rosneft has not changed its commitment over future oil sales with the KRG.

Oil market’s bet on Iraq’s unity 

The Kurdish referendum has been condemned by a segment of the international community – Iraq’s neighbours, especially Turkey and Iran, the United States, and Britain – out of fear of further instability, or worse, a possible escalation to war, in such a strategic oil region like Iraq. Despite the tensions, however, a conflict in the region is unlikely.

First, the oil market trend, trade, and investments have not been affected. Kurdistan Iraq and its resources are vital for the Iraqi economy and will encourage the dialogue with the government in Erbil. On the other hand, before the KRG could declare independence, it would need a certain level of international recognition and establishment of its own oil trade market.

It is also important to remember the essential role of the Kurdish Peshmerga in the fight against the Islamic State (ISIS), as well as the Peshmerga’s close collaboration with Turkish and American troops. The Peshmerga achieved significant goals, such as conquering many territories occupied by ISIS.

To be sure, the atmosphere in the Middle East is overheating and the Kurdish claim for independence will not be given up easily nor soon. However, the economic interdependence in the energy sphere is a chain that will be hard to break for both Baghdad and Erbil.

Stefania Mascolo

Stefania is a Master student graduate in International Security, working in International Affairs and Military Defense field, but also involved in Human Rights protection. She combines her area of expertise with journalistic skills and teaching experience in Latin America.
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