COMMENTARY: Turkey, Iraq and Iraqi Kurdistan play a dangerous game

The Economist  – December 20, 2012 – Snaking their way from Kirkuk, a city 240 kilometres (150 miles) north of Baghdad, through Kurdistan and across Turkey’s eastern region of Anatolia to the Mediterranean are pipes that once carried 1.6m barrels a day (b/d) of Iraqi oil to the global market and yielded fat transit fees to Turkey along the way.

The infrastructure underpinned the two countries’ mutual dependence. But nowadays the balance of power has shifted. A third party, the Iraqi Kurds, has changed it. It is unclear who will emerge on top. But Iraq’s central government in Baghdad is on the defensive.

Wars, saboteurs and, since the 1990s, economic sanctions have left the Iraqi sections of the pipeline system in a mess. Barely a fraction of its capacity is used. One of the two parallel lines stands empty and the source that once fed them, the giant Kirkuk oilfield, is dilapidated. The oil ministry in Baghdad has vague ideas about revamping the pipeline, perhaps to carry crude extracted near Basra, in the far south, though this would need an expensive new pipeline to link both ends of the country.

But Turkey is hatching a different plan for its section of the Kirkuk-to-Ceyhan pipeline. Its souring relations with the government in Baghdad have spurred it to cultivate new ties with the Iraqi Kurds’ regional government in Erbil, which oversees the oil and gas that Turkey’s growing economy craves. A wide-ranging energy deal is in the works that will see state-backed Turkish firms and Western oil majors plough money into Kurdish infrastructure and oilfields, connecting them to Turkey and the world beyond. The deal could eventually allow for up to 2m b/d of Kurdish oil exports to go through Turkey.

Last year, trade between Turkey and Iraqi Kurdistan amounted to $8 billion. Turkish money has paid for pristine airports in Erbil and Duhok, an Iraqi Kurdish city further north, and for other large projects. Not long ago, Turkish politicians, wary of their own large and restless Kurdish minority still fighting for autonomy (or more) in eastern Turkey, barely acknowledged Iraq’s autonomous Kurdish region.

Now Turkey’s government is using its commercial clout to press the Iraqi Kurds’ president, Massoud Barzani, to help restrain militant Kurds within Turkey. A stroke recently suffered by Jalal Talabani, a Kurd who is president of federal Iraq and who has often mediated between his kinsmen and the rulers in Baghdad, may make it even harder to keep the calm. Oil and gas are at the core of this warm new relationship between Turkey and Iraq’s Kurds. “Turkey has made a strategic shift in its relations with us,” says an official in a ministry in Erbil. “Whatever the scenario, our market is in Turkey.”

Nuri al-Maliki’s government in Baghdad, dominated by Shia Muslims, has unwisely pushed Turkey into this oily Kurdish embrace. Mr Maliki’s close ties to Iran and support for President Bashar Assad in Syria have angered Turkey’s government and convinced it not to rely on Iraq. The refuge offered by Turkey to Tariq al-Hashemi, Iraq’s vice-president, who was sentenced to death in absentia by a court in Baghdad in September, has also upset Mr Maliki, who has duly insulted Turkey’s leaders. In November his government expelled Turkey’s state oil company from a block in Iraq, plainly out of political spite. In December he ordered his air-traffic controllers to deny landing rights to Turkey’s energy minister, Taner Yildiz, who was en route to Erbil for an investor conference.

Iraq’s central government seems bent on wrecking the Kurds’ thriving oil industry, saying that their regional government has no legal authority to export oil independently or sign contracts with developers. The government in Baghdad has delayed payments to Iraqi Kurdistan’s oil producers, who say they are owed about $1.5 billion. Some explorers fret that they will never recoup their cash. Pars Kutay, an executive at Genel Energy, a Turkish oil-producer in Kurdistan, says that depending for payment on Iraq’s central authorities is like “pumping oil into a black hole”. Kurdish oil exports are now said to have collapsed to around 30,000 b/d.

This helps no one. Oil explorers in Kurdistan, now including big spenders like ExxonMobil and Chevron, are said to have so far invested about $10 billion. Future exports of 2m b/d, as envisaged by the regional government in Erbil, would yield far greater sums. Under Iraq’s revenue-sharing scheme more than four-fifths of the money from such sales would go to Baghdad, 17% to the Kurds. If the region’s oil were allowed to flow, Kurdistan, now a drain on Iraq’s budget, would soon be a net contributor, says Ashti Hawrami, the Kurds’ oil minister. “It is a win-win.”

But the centralising Mr Maliki is deeply loth to give the Kurds their head. Their oil policy, he says, threatens to tear Iraq’s fragile federation apart by fostering similar aspirations in its oil-producing provinces in the south. Western governments, fearing that Iraq’s disintegration would strengthen Iran, are siding with Mr Maliki. The Americans are pressing Turkey to tone down its support for Iraq’s Kurds.

In recent weeks Mr Maliki has mobilised Iraq’s army along the fault-line that divides the Kurdish region from the rest of Iraq. Bombs have killed at least ten people in the past fortnight in Kirkuk. Kurdish leaders say that they are ready to fight and have sent thousands of their fighters, known as Peshmerga, to face down the Iraqi army. From a ridge north-west of Kirkuk, they peer through binoculars at Iraqi troops massing a few hundred yards below on the plain. “If one Peshmerga is killed,” says a Kurdish officer, “it is war.”