How far might Mr. Barzani go?

By Sarkawt Shamsulddin: 

As tensions between the Kurdistan Regional Government (KRG) and its federal government or the Government of Iraq (GOI) reach to the point where the federal budget has been cut from the region, the gap between the two becomes critical and building a bridge is required now. When I have talked to my colleagues and friends at the United States Department of State or my professors at the University about the government formation in Iraq, I have always said that it is true that Iraq “constitutionally” has adopted a federation system, but in reality there is no federal government. There is a regional government that controls three provinces in the north called the Kurdistan Regional Government, and there is another government that controls the center and south of Iraq called the central government. The rest of the country, fragile Sunni areas, are under the control of insurgent groups, despite the existence of Iraqi military bases and weak and powerless local governments.

First of all, to have a real federal system, there should be more than a region or state, but in Iraq’s unique situation there is only one officially defined region, the Kurdistan Region; in another words federalism in Iraq hasn’t been formed yet. The recent developments between the KRG and GOI on oil and budget-cutting proved that there is absolutely no federal government on the ground. It has not just proved the idea of a “state” within a state, but of two “states” within a state.  Is that really “The End of Iraq”? Does Mr. Barzani have an idea where he is directing his region to? Does development in Kurdistan mean problems for Baghdad? How much might the early national election campaign escalate the anxieties? To what extent are Iraq’s major players – the US, Iran, and Turkey – involved?

Oil and revenues are the main topics of discussions between the two governments. The central government, headed by Prime Minister Nouri Al Malki, accused the regional government, headed by President Masoud Barzani, of not sharing its revenues with the rest of the country, despite the fact that the region gets 17% from the federal budget each year. On the other side, the KRG denies Baghdad’s accusations and denounces the budget-cutting by Baghdad as “declaring a War.” Ironically, both sides refer to the Iraqi Constitution as they debate to defend their positions. Each side uses the Constitution to legitimize its actions against each other. Yet, so far, neither wants to take the case to the Iraqi Constitutional Court. Nevertheless, the role of institutions such as parliament, the constitutional court and other political groups is absent. The tensions, sometimes, have been seen as an issue between Prime Minister Malki (GOI), and President Barzani (KRG) or, we better say, between Mr. Al Malki’s Daua Part and President Barzani’s Kurdistan Democratic Party (KDP). Other political parties are marginalized or their positions are ambiguous. Therefore some political analysts talk of the issue between Mr. Barzani and Mr. Al Malki, rather than between Erbil and Baghdad.

Paradigm shift in Erbil-Baghdad tensions

Oil exploration and investment in this field is new to the Kurdistan Region. It started after 2003, following the US-Iraq War. The only source of oil for the region was their share from smuggling oil to Turkey by the former Iraqi regime. After 2003, the region completely depended on Baghdad to get its share and faced so many crises as Baghdad couldn’t improve its oil refining capacity. But the situation has changed after adding a new ministerial position to the Kurdistan Regional Government’s cabinet in 2005, which is called the Ministry of Natural Resources and the idea of foreign investment in oil and gas field has started since then. The region then only had 2000 barrels of oil per day (bpd) from the Shiwashok Oil Field  in Erbil and Tawke in Duhok. Apparently, the KRG’s Ministry of Natural Resources has announced that the region can produce 400,000 bpd in 2014.  According to the Iraqi constitution regional governments can’t have three ministries within their regional governments, as they are considered to be merely under the jurisdiction of the federal government. There are the Ministry of Foreign Affairs, Ministry of Oil and Ministry of Defense. But the KRG created alternatives to all three, in different forms or names. The Ministry of Natural Resources which controls oil, gas and minerals; the Department of Foreign Affairs as a substitute for a Ministry of Foreign Affairs; and the Ministry of Peshmarga as the substitute for a Ministry of Defense. The KRG’s Ministry of Natural Resources has more authority than Baghdad’s Ministry of Oil, since the former controls oil, gas and all natural resources such as minerals. From the very beginning, Baghdad opposed the KRG’s efforts toward oil exploration, contracts, building pipelines and, recently, flowing it to international markets.

Dozens of meetings and talks were held between the two sides to resolve the issue. Even Turkey, Iran and the US interfered in these talks to try and secure an agreement, but the issues piled up until they recently reached a climax, with the cutting of the KRG’s share from the national budget which is, without doubt, a clear violation of the Iraqi constitution by Baghdad. Is the KRG really angry about this decision? It seems that KRG officials are really worried about this decision, and President Barzani even said that “it is declaring a war on Kurdistan!” But, if you look at the other side of the image, this is what KRG or, we better say, Barzani has been planning for as part of Ministry of Natural Resources’ strategy. Escalating the issues, and neglecting threats and warnings by Baghdad is what KRG has been implementing so far. The idea is to reach a point where there has to be a shift in the direction of talks from denial to multiple solutions. In fact Baghdad has been giving up its denial positions over oil contracts, separate pipelines and the costs of oil companies. The current talks are not about whether the KRG can send oil to the international market or not, but about the revenue. Baghdad indirectly endorsed the KRG’s deals with oil companies, and has not stated more concerns about a separate pipeline. In another words, Baghdad’s concern is over the oil revenue rather than the deals and costs of the foreign companies. So, the sticking points are about who will monitor the revenue? Where to keep the money? Will the KRG take the money directly, deduct 17%  and send the rest to Baghdad; or will Baghdad take it? The fact is, the two governments are skeptical about each over. Both are working on tactics to hide the revenues from each other , rather than techniques to better manage the wealth of the country.

Who is going to win?

What makes it different now is the timing. Mr. Al Malki’s use of budget-cutting was not expected by the KRG, at least not now while all parties are preparing themselves for the national election in April.  It seems that this situation may not be favorable to Barzani, since it may increase pressure from the public and the KDP’s rivals in Kurdistan and may jeopardize the party’s popularity in the Iraqi national election and the Kurdistan provincial election since one of the KDP’s strong points during last year’s Kurdistan parliamentary election was the promise that they would distribute oil revenue as cash among the people if they won the election; but now they can’t even afford to pay monthly salaries to public employees. But maybe this is what Prime Minister Malki is planning  for, “hitting two birds with one stone!” He puts pressure on the Kurds to increase his popularity among Arab nationalists and gain more votes in the national election. He also wants to create a financial crisis in Kurdistan that leads to a decline in Barzani’s popularity. The question is: do Malki’s supporters, mainly Shias, want him to harm Kurds? Is that what they want from Maliki? Recent polls showed that young Iraqi’s priorities are jobs, security, social life, education, religion, health care and an end to ethnic or sectarian problems. So, Mr. Al Malki’s technique may not work so well, and it may endanger  his reputation among Faili Kurds who have voted for him in the past. Ironically, Mr. Barzani may also use this crisis in his favor by presenting the tensions between himself and Mr. Al Malki as a war against the Kurdish people, thus gaining more votes among Kurdish nationalists, especially those who live in the disputed areas.

What to expect then?

What is called “election fever” may affect everyone as a result of the inevitable increase in partisan media attacks. There is no hope to hold productive meetings and solve the problems, especially the oil and budget-cutting, for the time being. Fortunately there will be compromises and more friendly statements after the national election as it is expected that no fraction or party will get a majority in the parliament. It is expected traditional political blocks may lose popularity and new political groups may appear and therefore the negotiations may take months, if not a year, to form a new Iraqi cabinet. Until then, Baghdad may release the KRG’s budget partially, in a trade-off for the approval of the 2014 national budget, which has been held up in the Iraqi parliament by Kurds and Sunnis who seem to be getting closer to each other. There is a big pressure from the United States government on both the KRG and GOI to work together and de-escalate the tensions. The recent talks are the result of US diplomatic efforts.

The oil products from Kurdistan have to flow to the international market, sooner or later. Neither the Iraqi government, nor the Kurdistan Regional Government can stop oil flowing to the market anymore. Otherwise, they will pay the price, which is going to be something similar to regime change. The oil companies – especially Exxon, Chevron and BP – are game changers in a lot of countries they have business with. Opposing their interests may lead to unexpected consequences. So, the point is that the oil products must flow to the market, whoever takes credit for this is irrelevant to the oil companies. The countless queues of oil tankers to Iran and Turkey is part of the KRG’s obligation to provide the costs and rents of oil companies working in Kurdistan. This is also considered as one of the points behind the mystery surrounding the KRG’s oil revenues.

Where are the regional and international actors?

The United States is the man behind the scenes. It is Washington that wants the oil to flow to the market and wants Iraq to increase its capacity to export more oil. There are lots of talks and debates about whether US influence is declining in Iraq. If you look at the big picture, you may not see many US footprints on it. But the major game – oil talks, pipelines, de-escalating the tensions, and protecting PM Malki from a parliamentary withdrawal of confidence – all happened under the influence of Washington. Of course, Iran’s involvement in Iraq’s issues is no less than that of the US. But it is Iraq’s unique situation that the US and Iran have common goals and interests that seem to be working together. Both the US and Iran want a unified government in Iraq with a strong center. Both support the Iraqi government in fighting insurgent groups.  But one major demand that the US wants from Iraq is to increase oil products to fill the gap that occurred due to the sanctions on Iran. It is actually Iraq that is filling this gap and the US highly appreciates this because it will stabilize the oil price and give the international community more scope to tighten their restrictions on Iran. So, the United States wants more oil to stream to the market from Iraq. Thus the US concerns over Turkey-KRG oil deals is not about the fear of KRG economic independence, but the US is worried about something else. As the United States presses the Iraqi government to increase oil products, the Iraqi government is also pushing the Obama administration to stop the KRG-Turkey deal in return. Baghdad’s fear is not just about the KRG, but that it might set an example to other provinces to seek economic independence.

Turkey and Iran both want oil, especially at a lower price, and the KRG’s fragile position guarantees this for them. Turkey’s relations with Baghdad are not in a good shape now. However, Iran is more than a partner with Iraq. All three don’t want the Kurds to move toward independence, but they are not in a condition to reach a consensus about the Kurds. Turkey’s economy is so in need of the KRG’s oil and gas to avoid Russia’s pressure and to maintain its growth. Iran’s interests in the Kurdistan Region are not less valuable than those it has with Baghdad. The Kurdistan Region is the key factor in maintaining security on Iran’s border, silencing its main armed Kurdish opposition, and boosting exports and trade. On a daily basis, Iran receives thousands of oil tankers through its ports with Kurdistan, despite Baghdad’s anger. Therefore Iran can’t trade-off the Kurdistan Region for Baghdad.  So, if all three major players in Iraq – the US, Iran and Turkey – want the oil to flow, then who doesn’t want that?

The only opposition to Kurdistan’s oil flow, at least not under the control of the KRG, is Baghdad. Prime Minister Al Malki may accept an oil deal with the Kurds only when he needs it to guarantee his third term as a prime minister.  It is unlikely that any agreement between the two will happen before the national election in April 2014. So, what is required from Mr. Barzani is to de-escalate the tensions with Baghdad until after the election. The results of the election will definitely affect everyone’s plan. In order to firm his stance against Baghdad, Mr. Barzani should speed up the formation of the KRG’s 8th cabinet before the Iraqi national election and encourage the participation of all major parties, even if this means a major compromise by the KDP. Otherwise, Barzani can’t confront Baghdad by himself without Gorran and the PUK’s support. Delaying further the formation of the KRG’s new cabinet and marginalizing the major parties will weaken Barzani’s position with Baghdad.

Sarkawt Shamsulddin: Graduate Student at Virginia Tech University, School of Public and International Affairs, majoring in Governance and Global Security. Previously, worked as Consular assistant at US Embassy Baghdad, US Consulate General Erbil. 

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