In a crucial development, the Iraqi Government and the Kurdistan Regional Government (KRG) have reached a preliminary agreement on resuming oil flow. The tentative understanding came after KRG Prime Minister Masrour Barzani visited Iraq’s Prime Minister Mohammed Shia’ al-Sudani, and not only eased the crisis but also signaled the potential for a long-term deal that would resolve disputes over natural resources. However, this development also effectively extinguished the KRG’s economic independence aspirations.
A mere two weeks ago, the ICC International Court of Arbitration in Paris ruled in favor of Iraq, hastening a permanent oil agreement between the Iraqi government and the KRG. Turkey, which had facilitated KRG’s independent oil exports without Iraq’s approval, was ordered to pay $1.5 billion in damages for breaching a 1973 pipeline transit agreement. Consequently, Turkey halted exports, creating a crisis for the KRG. The current understanding resumes oil flow for the time being.
The Iraqi federal government and the KRG have been at loggerheads over oil sales since 2014. The KRG exported oil through Ceyhan pipelines connected to Turkey, leading to a budget cut from Baghdad. This policy, devised by the ruling Kurdistan Democratic Party (KDP) and hesitantly supported by their domestic rival and coalition government partner, the Patriotic Union of Kurdistan (PUK), aimed for a share of the budget and national unity.
The notorious and opaque 50-year energy agreement with Turkey has faced criticism due to its lack of transparency and the KDP-led KRG’s perceived subservience to Turkey. Although the KRG Oil and Gas Council includes members from other ruling political parties, a common grievance is their limited knowledge of the agreement.
Another factor contributing to the policy’s unpopularity was the economic crisis it indirectly caused. With a budget cut from Baghdad, the KRG couldn’t pay civil servants on time and repeatedly missed payments. Monthly salaries for public sector workers were also reduced.
Baghdad opposed the energy agreement, deeming it a violation of the country’s federal system and Kurdistan as a breakaway region acting unconstitutionally. Economic independence was seen as vital for eventual Kurdish independence. However, after the ill-fated 2017 independence referendum, KRG’s leverage further weakened, ending its de facto state-to-state relationship with Baghdad.
In 2022, the Federal Supreme Court deemed the KRG Oil and Gas Law unconstitutional and demanded its cancellation.
Following the ICC International Court of Arbitration’s decision, the KRG was forced to cooperate with Baghdad to maintain oil sales. The Iraqi government spokesperson confirmed that the KRG agreed to form a committee to negotiate with Iraq’s federal oil marketing firm, SOMO, over oil sales from the Kurdistan Region, with prices set by SOMO. A temporary agreement has been established until an oil and gas bill is voted on in Iraq’s federal parliament.
As the latest news emerges from Iraq, it appears the KRG is moving towards a more federal arrangement, fostering closer relations between Baghdad and Erbil but also relinquishing control of natural resources and reversing independence plans. The agreement stipulates that crude oil from the Kurdistan Region will be jointly exported by the KRG’s Ministry of Natural Resources and SOMO. Reports suggest a candidate from the Kurdistan Region may be elected as Deputy Head of SOMO. s for Erbil include the continued flow of oil, crucial for petroleum operations, and income from oil sales going to a KRG-controlled bank account under Iraqi oversight. The Prime Minister and official government accounts, as well as analysts close to the KDP, have touted this development as a victory on social media.
However, Deputy Prime Minister Qubad Talabani of the PUK downplayed any victory, asserting that this option was only for the KRG following the Paris verdict and should have been pursued sooner. He also added that it didn’t matter who sold the oil as long as salaries were paid. This perspective highlights a departure from the Prime Minister’s and the KDP’s approach, reflecting a greater focus on the financial challenges facing Iraqi Kurdistan.
Bafel Talabani, Qubad’s brother and PUK party leader, has expressed support for rapprochement with Baghdad over the years. He advocated for SOMO to handle oil exports if the Kurdistan Region had representation within the marketing firm, thus endorsing a unified approach to marketing Iraq’s oil. Lately, the PUK leader has shifted his focus from Erbil to Baghdad, visiting influential political party leaders and government officials in the city. His growing relations with Baghdad are inversely proportionate to his increasingly strained relationship with the KDP under the grip of party deputy leader and KRG Prime Minister Masrour Barzani.