Low Oil Price Compels Baghdad To Allow Kurdish Exports

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Iraq’s central government appears likely to begin allowing the Kurdish Regional Government (KRG) that controls northern Iraq to begin exporting oil through Iraq’s main pipeline, in the latest unexpected consequence of the global economic crisis.
A year ago, this kind of decision would have been unthinkable in the absence of a comprehensive national hydrocarbons law.
The reason for Baghdad’s policy shift is simple. The price of oil is under $60 – down from more than $150 last summer.
As Liz Sly details in today’s Los Angeles Times, the Iraqi central government – which depends on oil revenues for 90% of its income – is in serious financial trouble.
Absent a substantial increase in the price of oil, Baghdad is going to suffer from huge deficits and will have to persuade gun-shy foreigners to provide capital or beg the IMF for a rescue package.
Baghdad apparently feels so desperate for revenue that it is going to allow the KRG to export its oil to Turkey’s port in Ceyhan, the revenue from which will flow to the central government.
As this International Crisis Group report explains (see esp. pp. 15-19), there are two important reasons that Baghdad has historically objected to the KRG exporting its oil.
First, Baghdad wants to prevent the KRG from increasing its economic independence from Baghdad, which would help it to consolidate political control over its territory and increase its leverage vis a vis Baghdad.
Second, Baghdad is afraid that allowing the KRG to enter into binding legal agreements with foreign firms and to exercise effective control over its natural resources will strengthen any future claims of sovereignty or independence that government might make and broaden its international support.
If Baghdad does in fact allow the KRG to export oil through its pipelines, this is a significant indication of Baghdad’s economic weakness that deserves to be watched closely.
(Photo credit: jamesdale10’s photostream)
— Ben Katcher

Comments

5 comments on “Low Oil Price Compels Baghdad To Allow Kurdish Exports

  1. Curious Cat says:

    The Kurds have wanted independence perhaps since Saladin. They now have a defacto independent state. But they live under the threat of the Iraq central government attempting to take control of the Kurdish region again. There is also Turkey, which does not want to see a declared, independent, Kurdish state. The Kurds are surrounded by people who want either their destruction or subjugation. I have been wondering for some time if they have been purchasing arms. Heavy machine guns, anti-tank weapons, human carried anti-aircraft rockets, mortars and similar arms. But I have not seen any reports in the news (not that this sort of thing usually makes it into the news).

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  2. Mr.Murder says:

    Use the oil freed from Cuba normalization to retain the SPR and backpressure the market on pricing. This is still allowing domestic producers a decent trade range to the level American subproviders and tubing factories(many foreign owned now but sourced here in the USA) can stay at levels to invite further investment.
    Obama used the same trump card Bill Clinton played on the strategic petrol reserve, to manage oil pricing and try to inspire additional business on any potential market confidence that should develop with a redeveloped lending cycle in place resulting the bailout.
    We’re not far away from market advance in terms of developing consensus. Demand for growth is still there in terms of infrastructure renewal as well. This could trend positively for an ability to satisfy the real estate sector, albeit less dynamic terms, but ones that still can secure improved fixed growth.

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  3. Don Bacon says:

    Iraq this year will enjoy an oil revenue of $35bn (est.), down from $62bn in 2008, which, by the way, is slightly more than half of US war costs in Iraq (FY2010–$61bn). Invest in war! War pays better than oil! But war for oil? Bad deal. It reminds me of the California Gold Rush. The merchants serving the gold rush area made more money, more safely, than the average gold-seeker did. So too now, Lockheed is fat while big oil (and Iraq) is gasping. Take that, Bush.

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  4. Mr.Murder says:

    As for the OPEC bloc itself, Clemons’ own think tank is helping bring together what could have once been considered rival interests.
    This indicates peak has arrived and major players are ready to concede some basis market share in return for us directing addtional flow from new markets their way.
    This is win-win if we can shape favorable results with Iran normalization and strongly consider boosting Syria and Turkey into favored nation status as catalysts to positive change in the region.
    One would pair our interests with NATO and the EU for Turkey, and the other would be a balance to emerging power in Iran/Iraq as Syria gains prominence. Saudi Arabia can concede some items to its own fundamental Shi’ite interests and gain stake in outcomes around the region with their fiscal power and an improving dollar.
    We need to advance on all fronts diplomatically and economically.

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  5. Mr.Murder says:

    The recent bad news in Afghanistan may start putting hedge pressure on oil pricing from the Arab block.
    We have the leverage of Cuba normalization and talking with Russia over the Bering offshore items to play back at this.
    Obama had to make a conciliatory political move and sack a General in the Afghanistan campaign. The promotion is justified in a sense that a boots on ground kind of commander with background in the special forces model is being used to help shape the action.
    The extent to which old guard revolts against Barack and Gates remains to be seen. Gates isn’t a soldier’s soldier, but he’s amazingly adept. Will he be seen as someone to supplant directions from as applied to field policy on ground situations?
    Every time the Muslim crescent wants to exonerate control it can tweak the pricing of basis oil.
    To answer this Obama should fast track some normalization with people we once assumed were counter cooperative. Cuba, and the partners they shape trade with such as Chavez and his bloc of influence in South America’s emerging OPEC states, these are big items to expand markets with.
    The extent to which these lands work with us can provide us scale commodities leverage, to open market doors, insure pricing stability on growth trends upward, and recall a heyday of parallel programs such as Peace Corps when America shaped outcomes in the spirit of helping others on similar interests.
    There’s no reason to worry, domestic oil can reach top revenue objectives any time the price is over $40, some fundamentals may have changed but not on scale enough to surpass the fifty a barrel range.
    In fact in the time I worked at an oil service subprovider it was 27 dollars a barrel that meant more work than you could cover for domestic purpose and that was in the mid late 90’s. Interestingly my state had a huge sector of such busniess providers and the Clinton era control of the strategic petroleum spigot rode just enough to keep the business brisk for subservice providers but still managed to ride out a good boom for the overall economy.
    Perhaps Hillary and Barack discussed this before she went ahead of him on a successful trip of foreign appearances that Obama made gains upon.

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