Iraq’s Divided Oil Industries: Oil in Iraqi Kurdistan and Role of International Actors

Abstract

The Kurds, who fought for autonomy for many decades in northern Iraq, had never played a leading role in the Iraqi oil industry. However, since the Iraq War began in 2003, the Kurdistan Regional Government (KRG) has launched its own oil industry.
In 2007, the Iraqi Parliament began discussing a draft oil law that would have comprehensively controlled the nation’s upstream oil industry; however, the negotiations soon deadlocked. The federal government did not agree to allow the KRG to develop oil in the region without federal consent. On the other hand, the KRG was unwilling to give up the right to have the final say on the development of oil in that region.
Following the breakdown of the negotiations, the KRG began building the oil industry unilaterally in that region. It drafted a regional oil law and accelerated oil development contracts with international oil companies (IOCs). The KRG claims that its policy is totally consistent with the new constitution, ratified in 2005. The constitution grants the KRG strong authority in the “Region,” a newly created administrative unit. However, international scholars are still debating on how to interpret the constitution.
More than 40 IOCs have entered into oil development contracts with the KRG, partly because they are attracted by KRG’s more lucrative contract terms than those offered by the federal government. The KRG is willing to offer better terms not only to develop its economic base but also for its own security. Every country normally keeps close eye on its economic interests possessed by IOCs and KRG hopes that any of those countries will try to prevent the federal government from militarily jeopardizing the oil industry in the region or the region itself, when thing go wrong.
In addition, the recent close relations with the neighboring energy-thirsty Turkey give hope to the KRG and the IOCs of direct oil exports, allowing them to eschew Iraqi pipelines controlled by the federal government. Turkey’s natural resources minister mentioned in May 2012 that the country was ready to import oil from the Kurdistan Region.
In the 10 years since the regime change, the Iraqi oil industry has turned out to be divided between the Kurdistan Region and the rest of Iraq. The KRG has been able to pursue a unilateral oil policy not only because of the constitution, which authorizes decentralization internally, but also because it has attracted the IOCs and maintained close relations internationally with an oil-consuming neighbor. In other words, the direct connection between the local actor, the KRG, and the international actors, such as the IOCs and the neighboring country, has shaken the national framework of Iraq.