MESOP : KURDISTAN RISING – Iraq Uses Influence to Thwart Kurdish Oil Sales / Israeli Sales

25-7-2014 – The American Interest – Iraq’s central government is throwing its weight around in the international oil markets to impede Kurdish ambitions for independence. The Kurds, who have announced their intent to hold a referendum on secession from Iraq in the fall, have been planning on using the newly-seized oilfields of Kirkuk to sustain a new country. As the Wall Street Journal reports, that may not be so easy: […] an examination of Iraqi Kurdistan’s attempted oil sales shows the steep barriers to becoming a legitimate player in international energy markets.

Major oil companies and refineries, for example, are reluctant to trade with the KRG for fear of breaking ties with Iraq’s State Oil Marketing Organization, or SOMO, which threatens to blacklist buyers of Kurdish crude. Iraq supplies about 4% of the world’s oil with roughly 2.5 million barrels shipped daily.

The U.S. believes the Kurdish oil strategy could destabilize Iraq and lead to the country’s breakup. Behind the scenes, the attempted oil sales have drawn diplomatic pressure from Washington, according to Western, Kurdish and Turkish officials briefed on the matter.

The Kurds claim that they are entitled to sell their own oil because the Iraqi central government has been withholding Kurdistan’s constitutionally-promised 17% of national oil revenues since January. The Iraqis, in turn, claim they’ve withheld the money in response to Kurdish aspirations for independence.The upshot is that four tankers of Kurdish oil have been sailing around in circles, stuck in limbo on the ocean. Finding buyers has proven difficult, because Iraq has threatened to seek reparations in the International Chamber of Commerce in Paris, which many European courts recognize, as well as forbid companies who buy Kurdish oil from working with SOMO (Iraq’s State Oil Marketing Organization).

The Kurds aren’t entirely without advantages, however. Turkey, through which the oil is piped, has an interest in seeing them find buyers, while one prospective buyer, Israel, has no incentive to respect Iraqi threats. Israel and Iraq have technically been at war since 1948, and have no diplomatic relations. The first tanker of Kurdish oil was finally sold to the Israelis recently—but the transfer had to occur unannounced and in international waters.Semi-secret sales to Israelis are not likely to sustain Kurdistan forever, though. Kurdish independence relies on the ability to sell 400,000 barrels of oil per day.

Ultimately, Kurdistan still has the fundamental assets it needs to sustain itself as an independent state: a strong military in the peshmerga, popular support, and lots of oil—which will eventually entice buyers, at some price. But as the Iraqis are proving, it will not all be smooth sailing.  Published on July 24, 2014 11:30 am