Iraq’s Oil Brinkmanship

Baghdad, however, has a different perception of the KRG’s leverage and energy strategy. Aware of Erbil’s financial dependency on the Iraqi government and the region’s current financial woes — Sulaimaniyah banks have been without cash for weeks and civil servants have not been paid — some Iraqi officials are willing to “call the KRG’s bluff.” They, too, have heightened the threat level by using Iraq’s own trump card: withholding KRG revenues, which represent 95% of the KRG annual budget.

Baghdad also has resorted to legal action, arguing that exporting natural resources from Iraq without federal government approval is equivalent to taking confiscated or stolen property. Neither Erbil nor Ankara can therefore legally load tankers in Ceyhan and sell Kurdish crude without the risk of international arbitration from Baghdad.

The Baghdad-Erbil energy dispute also involves the Iraqi provinces, which further complicates its resolution. Despite their shared anti-Malikism, demands for greater oil revenues, rejection of the 2014 draft budget and their admiration for the KRG’s accomplishments, the provinces do not necessarily support Kurdish oil, revenue and political demands. Iraqi populations disagree with what they perceive as the KRG’s “double standards.”

They argue that the KRG wants federalism on its own terms; it is part of Iraq when it is to the Kurds’ advantage (obtaining revenues), but independent at other times. Another common criticism by Arab Iraqis is that the KRG has “taken too much from Baghdad without giving anything back”.

Further, even though Basra and other oil-producing provinces have threatened to stop oil production and boycott the parliament, they do not fundamentally challenge the territorial integrity of Iraq. Their claims are based on “fairness” of revenue distribution and greater decentralization. A key demand is an increase in the government petrodollar payment from $1 to $5 per barrel.

Although other provinces have attempted to follow the KRG example by signing independent contracts with IOCs, such as Salahuddin and Wasit, they later affirmed Baghdad’s sole authority over the energy sector and canceled the contracts. Even Barzani’s commercial partner in Ninevah province, Sunni Arab governor Atheel Nujaifi, has indicated that any oil development in the province would be coordinated with Baghdad.