Iraqi Kurds look to Iran to lessen dependence on Turkey
KRG sees potential for Iran becoming a strong trading partner as well as a source of foreign direct investment but that could come at steep price.
Kurdish peshmerga fighter standing guard
2016/05/15 Issue: 56 Page: 5
The Arab Weekly
WASHINGTON - Two-and-a-half-years after the Kurdish regional government (KRG) and Turkey signed major oil and gas pipeline and supply deals, the cash-strapped Kurdish autonomous administration is looking to Iran to provide additional export routes for its crude oil.
The KRG and Tehran have been negotiating to build pipelines to carry Kurdish crude into Iran with the KRG receiving crude in kind in the Gulf in a “swap” agreement. Such a deal could save transportation costs for both sides and signal a shift in political alliances.
The KRG and Iran are discussing the construction of two pipelines, each with the capacity of 250,000 barrels per day (bpd) of oil. Both lines would emanate from oil fields in Kurdistan under the control of the Patriotic Union of Kurdistan (PUK), one of the two main parties that make up the KRG government.
One pipeline under consideration would originate near Kurdistan’s Taq Taq field and cross the Iranian border north of Lake Dukan, transporting crude to Tabriz in Iran’s East Azerbaijan province. A second line would run from near Kurdistan’s Khor Mor field to Khanaqin, which is close to the Iranian border, with the expectation of feeding the Iranian city of Kermanshah.
The KRG is in dire financial straits because of low oil prices, the costly fight against Islamic State (ISIS) and sheltering nearly 2 million Syrian refugees and displaced Iraqis, Baghdad’s suspension of the KRG’s budget allocation and periodic closures of the pipeline to Turkey.
The latest pipeline closure, which ended March 11th after 23 days, was the longest since Kurdish crude began flowing into Turkey in early 2014. March crude exports through the KRG-Turkish line amounted to 327,000 bpd, about half the normal volume.
In November 2013, the KRG and Turkey signed several landmark deals that called for the export of Kurdish crude and gas via pipelines through Turkey, agreements to which Baghdad objected. Kurdish crude began flowing into Turkey the following February. Iraq’s then prime minister Nuri al-Maliki retaliated by suspending the KRG’s 17% share of the federal budget.
Relations between the KRG and Turkey have recently become strained. The KRG is unhappy that all of its income from its oil sales is under Ankara’s control in a Turkish state bank account and the pipeline stoppages are a reminder of the risks of having just one crude export route.
Ankara blamed the latest stoppage on sabotage by the Kurdistan Workers’ Party (PKK), accusations the Turkish Kurd separatist group denies. The subsequent delay in repairs to the pipeline could have been an indication of Ankara’s displeasure at Erbil’s plans for a referendum on full independence.
Smaller volumes of KRG crude and refined products have found their way into Iran, with trucks transporting as much as 50,000 bpd of smuggled Kurdish crude and products over the Iranian border at several locations. With Western sanctions on Tehran largely lifted in January, the KRG has an incentive to look to Iran for another export pipeline route for its oil.
The KRG sees the potential for Iran becoming a strong trading partner as well as a source of foreign direct investment but that could come at a steep price as Iran has made it clear that it objects to Kurdistan breaking away from Iraq.
The KRG earned about $630 million a month in 2015 from direct oil sales, falling far short of the $850 million the government says it requires monthly for budget needs. Protests against the regional government have increased since the KRG announced austerity measures in February that included partial salary payments to state employees until the region’s fiscal health improves. Many of its peshmerga troops — a strategic component of the battle against ISIS — have gone without salaries for several months.
The inability to effectively wage war against ISIS was one of the issues raised by KRG Deputy Prime Minister Qubad Talabani on a trip to Washington seeking financial assistance in April. He warned US officials that “we are facing a very dire financial situation, which, if we cannot resolve, will undoubtedly impact the ability of our forces to keep the front line the way that we have done”.
According to KRG Interior Minister Karim Sinjari, the failure to pay the peshmerga has resulted in a 1% desertion rate that is likely to increase if the KRG does not receive financial assistance. US President Barack Obama’s administration appeared to be listening to the Kurdish officials’ pleas. US Defense Secretary Ashton Carter announced $415 million in US assistance to peshmerga forces during an April 18th visit to Baghdad.