State and Substate Oil Trade: The Turkey-KRG Deal

• Published in: Middle East policy 2016-03, Vol.23 (1), p.125-135
• Main Authors: Özdemir, Volkan, Raszewski, Slawomir
• Format: Article
• Language: English
• Subjects: Economic policy; Energy industry; Exports and imports; Geopolitics; Government; International law; Iraq; Kurdish people; Kurds; Petroleum; Politics; Prime ministers; Trade
• ISSN: 1061-1924; 1475-4967
• DOI: 10.1111/mepo.12178

After the U.S. withdrawal from Iraq, there has been increasing tension between the central government in Baghdad and the Erbil-based Kurdistan Regional Government (KRG) in northern part of the country. Although KRG President Masoud Barzani supported Iraqi Prime Minister Nouri al-Maliki in the federal elections of 2010, the two sides have been in open conflict over energy projects within the semi-autonomous Kurdish region. The KRG is a substate actor in regional relations whose international legal status has not yet been determined. It is important to note that any future determination will undoubtedly hinge on oil and gas resources. Maliki's administration has consistently argued that the Federal Oil Ministry has primary authority over Iraq's oil sector. The KRG has claimed independent authority over energy resources in the region, including the right to sign oil-field exploration and production contracts within its territory, govern oil fields, and export oil and natural gas. The federal constitution of Iraq regulates the oil revenue-sharing mechanism and other features related to energy exploration and production. Following from this, all petroleum exported from Iraq should be marketed through the country's State Oil Marketing Organization (SOMO), with the KRG receiving 17 percent of the resulting revenues. However, the regulation of the energy sector in the KRG is unclear. In light of this situation, Deputy Prime Minister Hussain al-Shahristani has expressed concern regarding violations of the fundamental principle embodied in the statute, asserting that KRG authorities should follow the constitutional order and not make oil-extraction deals with third countries without Baghdad's approval. Until recently, Baghdad appeared to have the upper-hand in the conflict, as the export pipelines have been under control of the central government. However, the commissioning of an oil pipeline linking Erbil to Turkey is changing the status quo by physically allowing the KRG to export oil to regional and international markets.