April 28, 2014 | 2258 GMT
April marks the two-year anniversary of the Kurdistan Regional Government’s stoppage of oil exports to protest what many Kurds considered unfair export terms from Baghdad. The Iraqi government responded by severely constraining budgetary allowances for Arbil. But with Iraqi national elections slated for April 30, there are indications that the Kurds’ years-long game of brinksmanship with Baghdad could be coming to an end.
In the years surrounding the 2012 U.S. withdrawal from Iraq, nervous Kurds were desperate to find a regional backer to support their local autonomy against Iraq’s Sunni and Shiite Arab political forces. Starting in 2003, Turkish firms eager to gain a share of their regional government’s energy revenue windfall built roads, schools and power plants with favorable credit terms as part of Turkish foreign policy prerogatives for the region.
Facing rising authoritarianism and a consolidation of political power in Baghdad, the Kurds made a gamble in April 2012: They sought to leverage the economic and strategic value of their energy exports against Iraq’s bottom line, assuming Baghdad would rather maintain oil revenues than keep them in line. They were wrong. Arbil subsequently pursued alternative export routes, including building a local pipeline with Turkish help and appealing to outside governments, but the Kurds are no closer to their goal of independent oil exports.
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The Kurds have built much of their local economy and physical infrastructure with foreign aid and funding, with promises of future payments contingent on Arbil’s coffers swelling with petrodollars. They have also made Arbil more attractive to Turkey, which is willing to overlook its traditional wariness of Kurdish independence for easy access to energy on its borders and for the chance to expand its sphere of influence more firmly into the Middle East.
The Kurds’ self-imposed export ban has seriously constrained their ability to pay not only local government salaries and pensions, but also fees to foreign oil companies and a host of creditors. The Kurdish government still owes international oil companies several billion dollars. Arbil has been able to stave off insolvency only through middling emergency budgetary allocations, some tacit Turkish financial backing and creative accounting practices involving wealthy local Kurds, private banks and state finances. But the governments in Iraq, Turkey and Iran — not to mention many Kurds themselves — doubt Arbil’s ability to maintain the export ban.
After years of inaction, recently there have been some quiet signals that the Kurds could be ready to make a deal. Part of this deal would involve Iraq rerouting some of its northern oil exports through Kurdish territory, linking to now-unused Kurdish infrastructure. But the overarching implication of the deal — Iraqi Kurdistan coming to terms with Baghdad’s legal and economic leverage over its export options and, fundamentally, the Kurds’ freedoms — still looms. The Kurdish economic position is faltering, and with it Arbil’s resilience, or so Baghdad is betting.
The Kurds’ local economic woes are being aggravated by some of the fiercest political infighting seen since the Iraqi Kurdish Civil War in the 1990s. A divided Kurdish landscape is also creating openings for Iran as northern Iraq retains its historical status as an arena for competing Turkish, Iranian and Arab interests. Some within the Kurdish leadership — finding no real options after the failed attempts to leverage oil exports and facing domestic and regional challenges — seem ready for a rapprochement with Baghdad.
In addition to the Kurds’ unsuccessful Turkish option, Iran recently offered the Kurds potential export routes through its territory. Currently under sanctions and a close political ally of Baghdad, Iran is not a meaningful alternative for the Kurds, even if the ongoing U.S.-Iranian nuclear negotiations provide Iran’s oil sector relief from Western sanctions. However, the offer underscores two uncomfortable realities for the Kurds: the lack of realistic export options independent from Baghdad and the rising Turko-Iranian competition for influence and authority in Iraq, including Kurdistan.
Negotiations between Arbil and Baghdad will be slow and painful and will be delayed as Iraq moves toward a raucous and chaotic period of coalition building following the April 30 elections. For the first time in years, however, conditions could be in place for a Kurdish capitulation to Baghdad as the regional competition rises for control over Kurdish resources.