Revenge of the Kurds II

NOTE: This story was updated late Friday.

Iraqi Kurds capped a week of steadily increasing tension with Baghdad by sending troops to seize oil fields near Kirkuk before Prime Minister Nouri al-Maliki could take the extraordinary step of destroying some of his own country’s oil installations. The move raises the specter of armed conflict between the restive northern region and the central government and seemingly accelerates the very disintegration of Iraq that the United States seeks to avoid.

Relations between Baghdad and Erbil were already in free-fall after Maliki labeled the Kurdistan region a haven for terrorists earlier this week. The Kurdistan Regional Government lashed out, calling the Iraqi prime minister "hysterical" and quitting day-to-day cooperation with the Iraqi government. Preemptively seizing the oil fields to forestall what the Kurds say was a concerted sabotage campaign marks a major escalation in the increasingly acrimonious relation.

Friday morning, July 11, Kurdish military forces seized a pair of Iraqi North Oil Company (NOC) fields near Kirkuk. The Kurdistan Regional Government (KRG) said that it stepped in because the Iraqi Oil Ministry planned to disrupt a new pipeline connecting the fields to Kurdish export pipelines; the Kurds built the pipeline after occupying the city of Kirkuk last month to give the country a northern route to export oil.

"This morning’s events have shown that the KRG is determined to protect and defend Iraq’s oil infrastructure whenever it is threatened by acts of terrorism or, as in this case, politically motivated sabotage," the KRG’s statement read. The KRG accused Baghdad of ordering NOC staff to "dismantle or render inoperable" valves on the new pipeline, which the Kurds say is crucial to keeping oil exports flowing in the violence-battered country.

The Iraqi Oil Ministry called the allegations "ridiculous," Bloomberg reported. Because of damage caused by earlier terrorist attacks on a separate export pipeline and the shutdown of a nearby refinery, the fields are producing only a fraction of their 500,000-per-day barrel potential. The KRG produces 360,000 barrels inside its territory.

The big questions now are: How much more will the move strain the unity of an Iraqi government still struggling to push back against a spring offensive by Islamist insurgents? And how will the Kurds actually sell the additional oil they now control? As a solely regional government, the KRG has hit major obstacles in finding international buyers for its crude since it began trying to sell abroad earlier this year — largely because of Baghdad’s threats and diplomatic pressure.

The Kurdish seizure will aggravate U.S. goals of getting Iraq’s Sunni, Shiite, and Kurdish populations to work together to fight the Islamic State, formerly known as ISIS. Coupled with strident talk of an independent Kurdish state, it further complicates efforts to broker a truce between Baghdad and Erbil, especially regarding international oil sales.

"The Kurds are playing an increasingly bold hand and it limits their options in terms of any kind of compromise with Baghdad or backing down from the path that they’re setting off on," said Richard Mallinson, a geopolitical analyst at Energy Aspects in London. "But there are no guarantees that they’ll be successful in going down that path in securing political and financial independence from Baghdad."

The United States still wants the KRG to work with Maliki’s sectarian and divisive government, even after Kurdish forces were the only ones that stood up to the Islamic State’s initial advances last month. Brett McGurk, the State Department’s top Iraq official, is in Iraq cajoling all sides to work together.

State Department spokesman Eddie Vasquez said in an email Friday that the United States urges all Iraqis to equitably determine how to share their national oil resources. "Iraq’s energy resources belong to all of the Iraqi people," he said, reiterating U.S. calls for Iraqi political unity in face of the threat posed by ISIS.

"As we have said, we support a unified and federal Iraq as defined in the Iraqi constitution, and the Kurds’ participation in the government formation process is essential. We urge all parties in Iraq to continue working together toward that objective," he said.

But for Kurds, the future of all that oil is at stake. Erbil said it hopes to meet local shortfalls in refined products with output from the seized fields, but that area lacks refinery capacity. And claiming that Baghdad has not handed over the Kurdish share of national oil revenue, it also hinted that it would try to sell the crude.

That won’t be easy. Even though the KRG opened its own pipeline to Turkey to jump-start its exports, international buyers remain leery of snapping up Kurdish crude. That’s because Baghdad insists that oil produced in Iraq must be sold through the central government. For months, Baghdad lobbed legal threats at the regional government in the Kurdish area and in Turkey to forestall the oil sales; the morning ISIS captured Mosul, Iraq’s second-biggest city, Baghdad was threatening action at the United Nations over Kurdish oil.

The pressure seems to have worked. Although the Kurds have loaded four tankers with crude, only one has found a buyer. Several have been at sea for weeks.

"The problem for the Kurds now is that the dominoes aren’t falling — they filled up these tankers and they’ve only sold one," said Matthew M. Reed, vice president at energy consultancy Foreign Reports.

Broadly speaking, there are two obvious paths the Kurds can pursue: finally reach a deal with Baghdad to remove the legal ambiguities, or declare independence. But, Mallinson said, the more the Kurds inch toward the latter, the more they rule out the former.

"Every move the Kurds are taking at the moment is almost calculated to create hostility amongst the other main communities in Iraq," he said.

Turkey, which is enabling modest exports of Kurdish crude, could help solve the impasse. Kurdistan has a major shortage of fuel, especially gas and diesel, after Islamic State militants surrounded the biggest refinery in northern Iraq last month. Turkey has spare refining capacity that could be reached by the existing pipeline network.

"If Turkey wants to save the day for the Kurds, they could refine the oil and sell it back to them," said Reed. The Turks could sidestep any outrage from Baghdad by presenting such a transaction as a humanitarian move to supply much-needed fuel to thousands of desperate people, he added.