MESOP REPORT : Poised to Gain in Iraq Crisis, Kurds Face New Barriers to Autonomy

By TIM ARANGO and CLIFFORD KRAUSSJULY 4, 2014 – New York Times – ERBIL, Iraq — Gasoline stocks in the Kurdish region are running low, requiring rationing and hourslong waits for a fill-up. Hundreds of thousands of civil servants have gone months without a paycheck after Baghdad cut payments to the regional government in retaliation for its exporting oil without permission.At the same time, a tanker filled with Kurdish oil has been stranded for more than a month off the coast of Morocco, prevented from unloading its lucrative cargo because of pressure from United States diplomats and threats by officials in Baghdad that any buyer would face legal challenges.

On the surface, these would appear to be heady days for the Kurds, who seem closer than ever to attaining their centuries-old dream of statehood. With Iraq’s Shiite-dominated government reeling after an assault by Islamic militants, the autonomous Kurdish region has seized control of the oil-rich city of Kirkuk and has begun preparations for a referendum on independence.

But that drive for statehood is presenting a new set of problems. Unable either to sell its abundant oil supplies abroad or refine them for its own use, the Kurdish regional government has seen its once-thriving economy stall.

A Rogue State Along Two Rivers

The victories gained by the militant group calling itself the Islamic State in Iraq and Syria were built on months of maneuvering along the Tigris and Euphrates Rivers, which define a region known as the cradle of civilization.

Now, powerful forces, not just in Baghdad, are lining up against Kurdish sovereignty, and even some Kurdish officials on a visit to Washington this week said they recognized that their quest might have to be delayed.

With a population that sprawls across four nations — Turkey, Syria, Iraq and Iran — the Kurds have historically been stymied in their pursuit of independence by the conflicting needs and desires of those parent states, and before them the Ottoman Empire.

Yet the 2003 invasion of Iraq by the United States seemed to provide an opening for the Kurds. They formed a highly effective fighting force, the pesh merga, to defend their territory and developed their own energy sources with an eye to achieving economic independence. Their economy boomed.Kurdish leaders worked to slowly expand the region’s autonomy, carefully avoiding any outright breach with Baghdad. When militants from the Islamic State in Iraq and Syria invaded Iraq this spring, the Kurds seemed well positioned to increase their influence, and perhaps even declare themselves an independent state.

But now bigger powers are raising objections. The United States, for one, is pressuring the Kurds to remain a part of Iraq and join in a national unity government that it sees as a starting point for dealing with the current crisis. Even Turkey, an important economic partner that has helped the Kurds export some of their oil, is against outright independence, fearing that would inflame separatist sentiments in the substantial Kurdish population within its own borders.

The only country in the Middle East that has rallied to the Kurdish cause has been Israel, which historically has had close, albeit covert, ties to the Kurds, seeing them as rare friends in a hostile region. Yet in a part of the world that is deeply antagonistic to Israel, that association is problematic for the Kurds.

In the end, though, even as the rise of ISIS has accelerated the Kurds’ drive for independence, their surest route to economic self-sufficiency and statehood is to export their own oil. But to achieve that, they will have to overcome a number of diplomatic and legal roadblocks.

Sitting on a sea of oil, the Kurds have already attracted major investments from energy giants like Exxon Mobil and Chevron. Regional oil experts say Kurdistan can now move 60,000 to 100,000 barrels a day of its own oil through a new pipeline to Turkey. Before that, oil had to travel by truck to Turkey, which has signed long-term energy agreements — deemed illegal by Baghdad and the United States — worth billions of dollars.

Additional drilling and the repair of a major northern Iraqi pipeline that has been repeatedly sabotaged could enable Kurdistan to export a million barrels a day, making it a world-class producer. But so far, the Kurds have been unable to sell much of the oil that they have managed to transport to the Turkish port of Ceyhan, on the Mediterranean coast, as buyers have been scared off by potential legal challenges.

At least four tankers, including the one lingering off the coast of Morocco, have been loaded with Kurdish oil at the port in Ceyhan, but only one, oil industry executives say, has found a buyer — an unidentified Israeli entity.

Even before the current crisis, the United States opposed the Kurds’ exporting their own oil, fearing that could lead to the breakup of Iraq.

“U.S. policy has not changed,” said David Goldwyn, who was the State Department’s special envoy and coordinator for international energy affairs in the first Obama administration. Referring to the Kurdistan regional government, he added, “U.S. policy remains: preserve the territorial integrity of Iraq, promote a political unity among the three major factions and oppose the K.R.G. flouting that unity by marketing its oil over Baghdad’s objections.”

The call by Massoud Barzani, the region’s president, for a referendum on independence has also found little international support, backed only by the Israeli leaders Benjamin Netanyahu and Shimon Peres.

“As soon as Barzani made that threat and Netanyahu and Shimon Peres echoed that, you heard Turkey say they do not want an independent state in Kurdistan, and the United States saying that as well,” Mr. Goldwyn said. “So I think the K.R.G.’s future lies in a strong economic relationship with Turkey, and if Turkey is opposed to independence, then independence will not produce the outcome they seek.”

There are signs, however, that the talk of a referendum on independence may have been a bargaining tactic. On Thursday, top Kurdish officials visited Washington, suggesting that they were still willing to consider a political settlement that would keep the region within a unified Iraq in exchange for more autonomy and more concessions on oil.They also acknowledged the budget crisis they are facing, not to mention the severe fuel shortages. “We need support and help,” Fuad Hussein, Mr. Barzani’s chief of staff, said this week at an event in Washington hosted by the Washington Institute for Near East Policy. “We’re not receiving money from Baghdad anymore, so we need financial resources.”

Mr. Hussein said he thought the Obama administration was reconsidering its policy toward Kurdistan’s increasing demands for more autonomy, if not outright sovereignty. “We feel they are ready to listen,” he said.

So far, though, the administration has been steadfast about preventing Iraq from breaking up, though analysts say it might be open to increased autonomy.

With Kurdish oil flowing through the new pipeline to Turkey, though, some analysts fear the debate over independence is in danger of being decided by facts on the ground.

Months ago, American diplomats felt they had put together a deal in which oil revenues would be held by the Central Bank of Iraq in an account in New York. But that fell through because the Turks insisted the money be put in an escrow account in Halkbank, a Turkish state-run bank that has been at the center of a corruption scandal.

Whatever the eventual outcome, the Kurdish region seems to be facing hard times, at least until the immediate crisis has passed, because few major energy companies are willing to invest heavily in the area until they are convinced they will have a trouble-free way to market the oil.

“Oil companies are very wary about touching what is considered a hot commodity,” said Denise Natali, an expert on Kurdish affairs at the National Defense University in Washington. “These kinds of small-scale exports can’t add up to meet their financial needs. The Kurds don’t have the pipeline, the storage capacity, the political support or the legal recognition to assure large scale, consistent, risk-free exports.”

Tim Arango reported from Erbil and Istanbul, and Clifford Krauss from Houston.