It was with boisterous satisfaction that Iraq greeted the verdict reached by the Paris International Chamber of Commerce at the end of March 2023, settling an oil dispute which had eroded relations between Baghdad, Erbil, and Ankara since 2014. The court of arbitration based in Paris found that Ankara had violated a pipeline agreement signed between Iraq and Turkey in 1973 which obliged the Turkish government to respect Iraq’s instructions concerning the transport of oil exported from that country. Turkey was ordered to pay Iraq 1.5 billion dollars in compensation.
At the same time, this verdict forced the Regional Government of Iraqi Kurdistan (RGK) to reach an agreement with Baghdad which thus far it had refused to do in the name of its strategic autonomy and this despite a ruling by the Iraqi Federal Supreme Court in February 2022. The country’s highest jurisdiction had found the RGK’s 2007 oil and gas law giving the region a completely free hand in the extraction and management of its natural resources unconstitutional. A law which the RGK had used as grounds for dozens of contracts with ExxonMobil or Total, as well as export agreements with Turkey at less than market prices. The Iraqi Supreme Court based its ruling, described as ‘political’ by the RGK, on articles 111 and 112 of the 2005 Iraqi Constitution which stipulate ‘the oil and gas belong to all the people of Iraq in all its regions and governorates’ and that ‘the federal government, the producing governorates and regional governments conceive together the political strategies necessary to develop the country’s oil and gas wealth.’
A budget agreement of an unprecedented scope
4 April 2023 was a red-letter day in the oil revenue conflict between Iraq and its autonomous region of Kurdistan. For on that day, the rulers of both sides announced they had come to an agreement, made official in articles 13 and 14 of the Iraqi Budget Act ratified on 21 June. That law enacted the country’s largest ever annual budget of 52 billion dollars, 90% of which was based on oil revenues, with 30% of these to be produced in the Kurdish region, proof that the country’s economy is entirely dependent on its rent-based economy.
If Erbil agreed to lose the management of the rich oilfields of Nineveh and Kirkuk which it controlled until now, this law guarantees it sufficient revenues for the next three years even prior to the sale of its ‘black gold.’ This 2023-2025 budgetary agreement provides for Iraq to contribute 12.67% of its budget to the Kurdish region, on condition of resources. In other words, if the Kurdish oil revenues are below this threshold, Baghdad will top them up so that the RGK can finance its operating expenses.
Once this law was enacted, the under-secretary of the Iraqi petroleum minister, Mohamed Al-Abadi, announced that his ministry was ready to resume pumping oil in the Kurdistan region at the rate of 500,000 barrels per diem. The enacted Budget Law mentions the daily exportation of 400,000 barrels produced in that region to the storage facilities of the State Organisation for the Marketing of Oil (SOMO) in the Tutkish port of Ceyhan. The revenues from these sales will be deposited by the Kurdish Region in the Iraqi Central Bank where they will be managed by the Kurds but under the direct control of the Iraqi Prime Minister.
Serious frictions between the Kurdish parties
This control should, in practice, oblige the Kurds to make good use of this money and diminish the amount of graft and misappropriation of funds. Another proviso of this law is that in the event of a conflict between the Kurdish provinces – Duhok and Erbil, ruled by the Kurdistan Democratic Party (KDP) and Sulaymaniyah and Halabja, ruled by the Patriotic Union of Kurdistan (PUK) – regarding the distribution of the revenue allocated to the Kurdish region, the Iraqi government may, after a 30-day cooling-off period, take back the control of the funds meant for the offended party.
For indeed, the friction between the KDP and the PUK has reached a new high; each party rules in total independence its zone of influence within the RGK, to the point of having its own peshmerga forces. Their disputes have threatened to bring about the implosion of the RGK, ruled mainly by the KDP, to a point where the ‘international community’ is quite worried since it is banking on the stability of the Kurdish region and its alliance with them. Some French, German, US, or British officials have travelled to the region in recent months in order, officially or unofficially, to urge both parties to resume talks.
The friction is indeed such that the PUK has refused to sit in the Kurdish parliament for several months now, while on 5 June the Erbil court of justice sentenced to death in absentia several high-ranking officials of the PUK’s counterterrorism service, including its chief. They were found guilty of the 2022 assassination in Erbil of one of their own, Colonel Hawkar Jaff, suspected of having been turned round by the KDP.
As for the parliamentary election in the Kurdistan region, it should have been held in the autumn of 2022, but a disagreement between the KUP and the KDP over the procedures and a new electoral law have postponed them until 18 November 2023. They will be organised by an Iraqi electoral commission rather than by the Kurds themselves, as every one of their parliament’s decisions since last October has been invalidated by the Iraqi Supreme Court, which found them to be outside its mandate.
And finally, the political and geopolitical alliances of the two Kurdish parties have not made things easier: the KUP is considered close to Iran – which has on several occasions in recent months bombed oppositional groups of Iranian Kurds having taken refuge in the RGK – but also close to the Kurdistan Workers’ Party (KWP) and Hashd Al-Shaabi’s Iraqi Shiite militia and his political coalition which controls the Iraqi government. As for the KDP, it is a faithful ally of Turkey (in fact its vice-president, and now regional president, Netchirvan Barzani, was the first to congratulate Recep Tayyip Erdoğan for his re-election, after the results … of the first round of the Turkish presidential election). And it is with the blessing of the KDP that the Turkish air force bombs the KWP on RGK territory. The KDP is also close to the Iraqi Parliament’s President, Mohamed Al-Halbousi and his Sunni coalition.
So, it is smack in the midst of this period of inter-Kurdish friction that Iraq has regained control of the Kurds’ oil. ‘The Kurdistan region is fully aware that since the 2017 independence referendum it has been considerably weakened, not only because of the confrontation with Baghdad but because of the severity of the conflict between Kurds,’ is the analysis of Yahya Al-Koubaisi, an academic specialising in Iraq. ‘The decisions taken by the Federal Court and then by the Paris court have further weakened Erbil’s position and the Budget Act was the last link in the chain.’
Turkey does not want to pay the penalty
All of that could have meant the end of the story and the resumption of exports from Kurdistan to the Turkish port of Ceyhan.
However, this would have been without counting on Turkey’s wounded pride, its annoyance at having been penalised by the International Chamber of Commerce in Paris and its fear now of a further sanction, Iraq having lodged a second complaint for the period of 2019–2023, currently under investigation. So, Ankara decided not to re-open the port of Ceyhan and the pipeline running to it in order to put pressure on Baghdad. ‘The Iraqi government wishes to reach an agreement on account of its huge budget deficit and consequently of its need to export the most oil possible in order to avoid the aggravation of that deficit’ Yahya Al-Kobaisi stresses. In his view, ‘the Turkish party is putting pressure on the Iraqi party to come to an agreement concerning the 1.5 billion dollars it owes iraq according to the verdict of the Paris Court, all the more so as it knows full well that Iraq can lose that amount every two months if it cannot export its oil via Ceyhan’.
The shortfall on the Iraqi side was already 2.5 billion dollars by July 1st 2023. While talks are already under way at the highest governmental levels between Turks and Iraqis, they have still not reached any conclusion. ‘The problems that are preventing the resumption of oil exports are more political than technical, as an Iraqi official explained to Reuters following a meeting on 19 June. Already the pipeline shutdown has brought about an 80% drop in the RGK’s income according to a letter sent on 15 June by members of the US Congress to Secretary of State Anthony Blinken asking him to put pressure on Turkey and Iraq to reach an agreement rapidly.
For the moment, Baghdad is preparing to reroute 400,000 barrels of Kurdish oil to its domestic market. And the RGK, whose coffers are not being filled since the end of March must rely more than ever on Baghdad’s financial contribution as foreseen by the new budgetary law; failing which, the region’s economic, humanitarian, and social stability could suffer badly. Meanwhile, Turkey is blackmailing Iraq, and it is the RGK that pays the piper.