Trade with the KRG is an important component of the trading activity in Iran’s western provinces of West Azerbaijan, Kurdistan, Kermanshah and Hamadan. An important part of the relationship has been the transit of Kurdish crude oil and petroleum products through Iran — a trade that has benefited Iran, as the purchase of Kurdish crude releases oil for export purposes in southern oil terminals.
In other words, Iran can save on transiting oil and petroleum products from its southern production sites to its northwestern population centers. Before such trade was banned in the aftermath of the recent referendum, the daily volume of crude trucked to Iran stood at 50,000 barrels per day. The planned construction of pipelines would increase the volume to 250,000 barrels per day.
In addition, there is significant cross-border tourism activity, including health tourism in both directions, as well as extensive collaboration between security forces on both sides, especially in light of the fight against IS. As such, the current status of trade and energy relations has benefits for both sides.
Following the independence vote, one of Tehran’s first reactions was to close Iranian airspace to air traffic with the KRG on the request from Baghdad. However, closing all border crossings would be operationally very challenging due to the large volume of unofficial cross-border trade between the two regions.
Furthermore, Tehran has also carried out military maneuvers around the shared borders to contain any border irritations by separatist Kurdish groups. Iranian Defense Minister Brig. Gen. Amir Hatami is also reported to have stated that “Iran is opposed to any action that leads to a change” in the geographical divisions of the countries in the region. In more muscle flexing, Iranian authorities banned any trade in crude and petroleum products between the KRG and Iran.
Indeed, the landlocked KRG depends on the cooperation of Iran, Turkey and Iraq to export its crude and import petroleum products. The impact of this ban is negligible on Iran, but would force the KRG to look for smuggling routes for its crude output, which will both be costly and risky.