Iraq: Kurds and Iran eye an oil deal

Erbil –  Iran and the Kurdistan Regional Government (KRG) have hammered out the technical details of a plan to build a pipeline that could transfer as much as 250,000 barrels a day of Kurdish oil to Iran, but signing off the deal has yet to happen, according to Kurdish officials.

“We [the KRG and Iran] have an understanding on how to do this [exporting KRG oil and gas to Iran]. The technical aspects have been talked about and are clear to both sides. What remains is the political and commercial side of it,” Taha Zangana, the KRG’s deputy minister of natural resources, who led the talks from the KRG side, told Al Jazeera.

Zangana added that a high-level Kurdish delegation is expected to visit Tehran – after the Muslim holy month of Ramadan –  to finalise and sign the deal. He, however, declined to say whether or not a specific date had been set.

If a formal deal eventually emerges, observers say, it could have long-term geopolitical ramifications by possibly bringing Tehran and the KRG closer together.

READ MORE: Iraqi-Kurdish oil deal is slipping away

Since 2014, discussions about building a pipeline between Iran and the Kurdish region had been continuing between senior Kurdish and Iranian officials. However, serious talks kicked off in March this year, according to Kurdish official sources.

If finalised, the energy export scheme will include both oil and natural gas since –  according to KRG data – Iraqi Kurdistan is believed to have some of the world’s largest gas reserves amounting to as much as 5.6 trillion cubic metres.

Exclusive dependence on Turkey, given the imbalance of size and power, is a tremendous risk for the KRG.

by Bilal Wahab, American University of Iraq, Sulaimaniya

The KRG already exports around half a million barrels of oil a day to world markets through its sole pipeline that ends in the Turkish port of Ceyhan, on the Mediterranean. “It’s important for us to have an alternative route for exporting oil by building [another] physical oil pipeline to transport Kurdistan oil to international market,” Zanagana said.

On April 4, Kurdish and Iranian officials reached an understanding on the technical aspects of the energy export project, but the KRG has yet to convey “its readiness” to its Iranian counterparts regarding a date to sign the deal, Nazim Dabagh, the KRG’s permanent representative to Tehran, told Al Jazeera.

Dabagh said some disagreements still persist as to the price and volume of the KRG oil delivered to Iran. However, the agreement so far is to pump a maximum of 250,000 barrels a day.

Another possible challenge to signing a final deal is whether Iraq’s federal government would support such a plan.The government in Baghdad has cut off the KRG’s share of the Iraqi national budget since early 2014 after the Kurds exported oil directly via neighbouring Turkey.

“There is no agreement between Baghdad and Tehran over this issue [exporting KRG oil to Iran],” said a high-ranking official within the Iraqi National Alliance (INA) parliamentary bloc, who spoke on condition of anonymity owing to the sensitivity of the subject.

The source, however, added that Iranian officials had briefed the Iraqi authorities about such a scheme as early as 2014 and that Baghdad had not made official objections to the matter.

The INA is the major Shia parliamentary bloc and many of its members are viewed as supportive of Prime Minister Haider al-Abadi. Zangana of the KRG says that although official approval from Iraqi authorities has yet to come, they have privately “expressed their happiness over it”. 

However, an Iranian diplomat in the Kurdish capital, Erbil, told Al Jazeera that his country would not sign an energy export deal with the KRG without Baghdad’s approval.

“Within the framework of the larger package of disputes between Erbil and Baghdad, if these issues are settled, then this [KRG-Iran energy deal] will be resolved too,” said Mohsen Bavafa, Iran’s deputy general consul in Erbil.

According to the current understanding between Iranian and Kurdish officials, the KRG will export oil to refineries near the Iraqi border such as the western province of Kermanshah or the northwestern province of Tabriz and possibly Arak as well as Tehran, two KRG officials told Al Jazeera.

In return, the KRG will receive crude oil from the Iranian ports in the Gulf to sell it in international markets.

The Kurdish oil will probably be pumped to Iran from fields in Sulaimaniya and possibly Kirkuk regions, according to Dabagh. But given that Kirkuk is a disputed zone between the Iraqi and Kurdish governments, it’s not clear whether Kirkuk’s oil will flow to Iran.

Kirkuk’s governor Najmaldin Karim had told the Kurdish Rudaw network that he didn’t think exporting Kirkuk’s oil to Iran was “practical”. While the KRG had set a target of producing one million barrels a day by 2105, it is far short of reaching that goal. Kurdistan’s natural gas production is also at an early stage, mostly covering domestic consumption.

Experts believe building a second pipeline to export energy resources to Iran will probably generate a mix of results. “Exclusive dependence on Turkey, given the imbalance of size and power, is a tremendous risk for the KRG,” said Bilal Wahab, director of the centre for development and natural resources at the American University of Iraq, Sulaimaniya.

Wahab says that if Tehran benefited from its oil deal with Kurdistan, this may help in improving the relationship between Baghdad and Erbil given Iran’s close relations with Baghdad. “But such leverage goes both ways. Iran’s leverage would also increase, of course, akin to Turkey’s growing political and economic clout in Kurdistan since the [launch of] Ceyhan pipeline [in 2014],” added Wahab.

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In recent months, there have been growing doubts in Kurdistan about the extent of Turkey’s reliability as the main energy export corridor. The pipeline transporting KRG oil to Turkey has experienced periodical outages either owing to the ongoing conflict between Turkey and the Kurdistan Workers’ Party (PKK) in the southern part of the country or acts of theft and sabotage by unknown assailants.

The energy talks with Iran come amid deep domestic divisions among Iraqi Kurdish parties. The Patriotic Union of Kurdistan (PUK) – one of the two major Kurdish ruling parties with its popular base in Sulaimaniya and Kirkuk provinces – appears to be enthusiastic about the deal.

Doubts had even emerged in recent months that PUK’s rival, the Kurdistan Democratic Party (KDP), which dominates the KRG, might stand against an energy deal with Iran. But KRG spokesman Safin Dizayee had denied those accusations in a statement.

Given regional rivalries between Turkey and Iran and the tense relations between Ankara and Baghdad over what Baghdad perceives as Turkey’s meddling in Iraqi affairs, there were questions as to how Turkey might react to another pipeline route exporting KRG’s oil to Iran.

Turkey has been KRG’s major energy partner – so far – and there are plans for the KRG to export as much as 20 billion cubic metres of natural gas a day to Turkey by the early 2020s. The former Turkish consul general in Erbil said that Turkey does not necessarily view an Iranian-Kurdish energy deal through the lens of regional rivalries. “Ankara sees the choice between Erbil and Baghdad as a false dichotomy,” said Aydin Selcen, who currently has no affiliation with the Turkish government, adding that Ankara also refuses to have Iran’s role, as a balancing factor in the region, imposed on it.

Speaking to Al Jazeera, KRG spokesman Dizayee said that Turkey has not had any negative reaction to the ongoing energy talks between his government and Iran.

“The oil and gas that goes to Turkey has its own market and goes to Europe but the one that goes to Iran is for Asia,” he said.