This analysis was part of Prime Source's Weekly Regional Assessment
Recent Development: In a move that is likely related to the Kurdish bid for independence, the North Oil Company (NOC), which is controlled by the central government in Baghdad, stop exports of oil from the city of Kirkuk in the disputed territories of northern Iraq to the Turkish port of Cehyan. A source within the NOC told Rudaw, a Kurdish media, that the decision was “political” rather than technical. The decision follows a visit by Iraq’s Oil Minister to Tehran during which he reportedly agreed to consider plans to ship Iraqi oil through Iran, including oil pumped in Kirkuk. Following this meeting, the Iranian Oil Minister stated that the two countries were moving closer to building a new pipeline to export oil from fields in and near Kirkuk.
Analysis: Baghdad’s decision to stop exports from the three oil fields it controls near Kirkuk along with efforts to build a new pipeline to Iran are likely meant to increase the central government’s leverage ahead of upcoming negotiations regarding the future of the Kurdistan Regional Government (KRG). In the Kirkuk region, the KRG controls two out of the five oil fields – while these produce more barrels per day than the government-operated oil fields – and exports them through a pipeline to the Turkish port city of Cehyan. In September 2016 Baghdad and Erbil had further agreed to split the revenues of the three oil fields controlled by the government into two and use the KRG-controlled pipeline to Cehyan instead of another pricier and relatively unpractical alternative to send oil by truck from northern Iraq to Iran. While it is unclear whether the central government will try to resume exports through a land road to Iran instead of the pipeline to Cehyan, Baghdad’s decision to shut exports through the Turkish pipeline is aimed at hurting Erbil, which suffers from a financial crisis tied to the current fight against ISIS and relatively low oil prices. Unless Baghdad finds another alternative, this decision also hurts the central government, which had initially been forced to make up for the loss of the Kirkuk oil field to the Kurds in 2014 by finally agreeing to the aforementioned compromise in 2016. The decision thus represents a “power play”, as Baghdad shows the KRG that it is exploring other options in Kirkuk – a highly disputed city in which the KRG seeks to hold its upcoming referendum on the independence of “Kurdistan”. While Erbil understands that eventually Baghdad could turn to Iran, the Kurdish government also understands that this move is quite risky and expensive – and likely assesses that Baghdad is bluffing – given the current sanctions against Iran and the fact that Kurdish security forces control the region and could seize the three oil fields controlled by the government if need be.