Erdogan’s Case for KRG Oil Exports

  • Middle East Policy

    Middle East Policy has been one of the world’s most cited publications on the region since its inception in 1982, and our Breaking Analysis series makes high-quality, diverse analysis available to a broader audience.

Nathaniel Kern, Matthew M. Reed

Turkish Prime Minister Recep Tayyip Erdogan will have much to talk about when he visits the White House on May 16. He and President Obama will surely discuss the crisis in Syria, Israeli-Turkish relations and Erdogan’s pursuit of peace with the PKK. In each case, Washington and Ankara agree on outcomes. Both leaders want Bashar al-Assad’s downfall, a renewal of ties with Israel, and a durable resolution of the Kurdish question.

There is, however, one issue that could prove more problematic: Turkey’s relationship with the Kurdistan Regional Government and future energy plans. The implications of any deal would be huge. If the Kurds export oil and gas to and through Turkey, the KRG could develop its own revenue stream and distance itself from Baghdad. The central government would be outraged and Iraqi-Turkish relations would suffer accordingly. For its part, the U.S. is gravely concerned that any deal could undo Iraq.

Erdogan’s Comments

Speaking to CNN Turk on March 29, Erdogan acknowledged that his government is “in the process of striking a trade agreement” with Erbil. A possible energy deal has been the subject of speculation for more than a year. Erdogan’s comments, though vague, were still significant because Turkish officials have said so little on the matter.

Erdogan met with KRG Prime Minister Nechirvan Barzani in Ankara on March 25. Barzani was joined by the KRG Minister of Natural Resources Ashti Hawrami. Details are few but Erdogan’s interview is still revealing. “Why did northern Iraq [i.e. Kurdistan] feel the need to make such an agreement with us? … Because they cannot agree with Maliki,” Erdogan said. “There is no article in the constitution that can prevent [the KRG] from making this trade contract with us.” The prime minister said a “win-win” agreement is possible.

One of the main legal issues facing the Turkish government is whether it can make an agreement with the regional government in Erbil while it continues to recognize the central government in Baghdad. Ultimately, Turkey may have to choose one over the other. In the meantime, its leaders insist that Iraqi unity is paramount and that future revenues will be divided according to long-standing agreements.

Washington Worried

U.S. Secretary of State John Kerry visited Baghdad just before Nechirvan Barzani met with Erdogan. While there, Kerry telephoned KRG President Massoud Barzani, Nechirvan’s uncle. According to Kurdish television reports, Kerry told Barzani, “to give up attempts to export oil from the region to Turkey via pipelines without Baghdad’s consent.”

U.S. officials fear that an independent export route connecting Iraqi Kurdistan to world markets could break up Iraq. With no Kurdish bloc in parliament, Maliki and his Shia majority could steamroll the remaining opposition. Some fear Maliki’s authoritarian tendencies would go unchecked and Iran’s influence would increase. Open conflict cannot be ruled out either. KRG President Massoud Barzani, for instance, has repeatedly claimed that American made F-16s might be used against the Kurds, if they are delivered to Iraq as promised.

At this time, American reluctance is considerable—perhaps insurmountable. But, if Erdogan wants to change minds in Washington, then he will have no better opportunity than his visit next month, which he could use to argue in favor of independent KRG exports through Turkey. Kurdistan’s appeal for exports is perhaps best framed as a last resort rather than the ideal solution. And for Turkey, an economically dynamic and energy hungry nation, the deal makes good sense.

Erdogan’s Challenge

If Erdogan is serious about pursuing a comprehensive energy deal, then he will have to explain the Kurdish side of their dispute with Maliki and point to the absence of the U.S. as an honest broker. As long as the U.S. and other members of the UN Security Council take Baghdad’s side in the dispute, any KRG exports to world markets could be rigorously challenged by Baghdad in various judicial venues. Erdogan’s case is made stronger by other negative developments in Iraq that reflect poorly on Maliki.

Unrest Elsewhere

Iraq’s political climate continues to deteriorate ahead of provincial elections on April 20. Anbar province—known as Iraq’s Sunni heartland—sees daily protests. Residents there complain that Baghdad discriminates against Sunnis, abuses terrorism laws to imprison them, and intimidates Sunni politicians. In 2011, Sunni Vice President Tariq al-Hashemi was forced into exile after being sentenced to death for allegedly running a sectarian hit squad; Finance Minister Rafi al-Issawi, also a Sunni, is a wanted man as well. He is now under the protection of Sunni tribes in Anbar.

Just before Secretary Kerry arrived in Baghdad on March 24, Maliki’s cabinet announced that provincial elections would be delayed up to six months in Anbar and Nineveh (a disputed province but demographically mixed). Outrage and Kerry’s intervention forced authorities to reconsider. Elections are now expected in May, although today’s tensions will not be defused at the polls.

Maliki Wins Budget Fight

Ahead of this year’s budget vote, the Kurds allied themselves with other opponents of the prime minister, hoping they could derail a budget that fell short of their demands. But by early March, Maliki had outmaneuvered his rivals. The budget passed with a quorum of 168 members, cobbled together without the participation of Kurdish parties or most members of Iraqiya, the secular party list that did so well in the 2010 national elections but has since splintered.

The new budget allocated $650 million to the central government to pay oil operators in the KRG instead of the $3.5 billion demanded by Erbil. Iraqi Deputy Prime Minister for Energy Hussein al-Shahristani has also threatened to make the KRG pay for oil it did not export in recent months. During the process, the Kurds complained loudly that their 17 percent share of Iraq’s budget shrinks every year. Thanks to the inclusion of more and more sovereign expenses, the KRG will receive just over 10 percent this year.

The budget may be legitimate in that it was passed according to rule and procedure. But it was another bitter pill to swallow for the KRG. And it again exposed Maliki’s preference for bare-knuckle politics. It is not directly connected to Erdogan’s meeting with Obama but it is another good example of Maliki’s difficult nature.

Failed Mediation

Erdogan could point to other episodes if he wants to bolster the KRG’s case. When arguing in favor of a comprehensive Turkey-KRG energy deal, Erdogan might want to acknowledge America’s failed attempts at reconciliation.

U.S. officials played the role of honest broker in the oil payments dispute between the KRG and Baghdad last year, arranging a September 13 agreement under which the Kurds resumed oil shipments through the federally-controlled pipeline to Ceyhan (on Turkey’s Mediterranean coast). In return, Baghdad agreed to pay the capital costs incurred by operators in the KRG as well as arrears. Baghdad made the first payment under the agreement on October 8. Hawrami, the KRG Energy Minister, formally committed to export 250,000 b/d in 2013 after he met with Deputy PM Shahristani in Baghdad on October 21.

The agreement unraveled quickly. Foreign oil companies in the KRG decided on their own to halt production and sales through the Kirkuk-Ceyhan pipeline in December.

Also last year, the top U.S. military officer in Iraq, Gen. Robert Caslen, helped broker a November 26 agreement to defuse a menacing stand-off between Kurdish Peshmerga troops and Maliki’s Tigris Operations Command. But by December 3, KRG President Barzani expressed exasperation. “It seems the Americans cannot do anything in Iraq,” he said. By this time he also gave up on direct contact with Maliki. “What would be the point of the contact? He regards himself as being higher and greater than anything else and Iraq’s absolute ruler,” Barzani told Baghdad’s Zaman. Conflict was avoided but posturing by both sides raised the risk of violence.

Iraq’s Role in Syrian Conflict

Erdogan might also remind Obama that the Iraqi government has failed to halt Iranian overflights to Syria. These flights reportedly supply arms and fighters to the Assad regime in Damascus. The U.S. first raised the issue early last year. As Chairman of the Foreign Relations Committee, Senator John Kerry even suggested that Baghdad’s refusal to intercept Iranian planes was cause enough to reassess military sales to Iraq.

During a September 2012 hearing, Kerry said Iranian shipments to Syria “may stop when it’s too late. If so many people have entreated the [Iraqi] government to stop and that doesn’t seem to be having an impact, that sort of alarms me a little bit and seems to send a signal to me maybe we should make some of our assistance or some of our support contingent on some kind of appropriate response.”

At the time, the State Department rejected his argument. Kerry has not repeated it since but he did raise the issue of overflights during his Baghdad visit last month. Ankara, like Washington, wants the rebels to succeed. Erdogan could use the overflights as a powerful example of Maliki’s unyielding stubbornness. (To date, Iraq has only searched three planes departing from Iran and destined for Syria. The most recent inspection came on April 8. No arms or fighters were found but skeptics believe Iran is warned prior to inspection.)

Status of Trade

For months, Turkey has imported small volumes of Kurdish crude by truck. Refined products are then returned to the KRG in what are essentially barter deals. On April 6, the KRG sold its first cargo of crude oil on the international market, in spite of legal threats from Baghdad. The KRG had previously sold a cargo of condensate internationally. However, these minor transactions pale in comparison to what the KRG ultimately wants: a pipeline connecting Kurdish oil fields to Turkish export terminals, allowing the transit of one million barrels a day—or more when combined with existing infrastructure controlled by the federal government.

Would prosperous energy trade between Turkey and the KRG spell doom for a united Iraq and thus thoroughly blemish the Obama administration’s record? Neither the Turks nor Kurds see it that way.


Foreign Reports is a Washington, D.C.-based consulting firm that writes and distributes timely intelligence reports on political developments in the Middle East relevant to oil markets. Oil companies, governments, and financial institutions rely on Foreign Reports for their insight and analysis on key issues affecting the world generally and the Middle East specifically. The firm was founded in 1956 and the current President is Nathaniel Kern.

  • Middle East Policy

    Middle East Policy has been one of the world’s most cited publications on the region since its inception in 1982, and our Breaking Analysis series makes high-quality, diverse analysis available to a broader audience.

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