The Kurdish Peshmerga forces have embarked on taking control over Kirkuk since June 2014 after the Iraqi army withdrew from several areas in the northern Iraqi provinces, coinciding with ISIS’s control over a several cities in these provinces. In addition, the Kurdistan Regional Government (KRG) seized control of most oil resources in Kirkuk, except three oil fields, which remained under the management of the state-run North Oil Company.
As Kirkuk’s oil fields management is split between the two parties, oil export operations remained a subject of debate between Baghdad and Kurdistan for nearly two years. At the end of August 2016, both parties reached an agreement to share exports’ revenues. Yet, the agreement collapsed soon in the wake of the of Iraqi Kurdistan’s independence referendum on September 25, 2017.
Widening Disagreements
The referendum escalated the tension between Iraq and Kurdistan Regional Government (KRG), especially that the former expressed its willingness to launch military strikes against the latter, in collaboration with neighboring countries, namely Iran and Turkey. The Iraqi government declared as well that it would impose economic sanctions, if Kurdistan insists on implementing the results of the referendum. Moreover, the two sides assert their right to exercise sovereignty over Kirkuk and its oil resources, and neither of them rule out using force to retain control over the province.
However, it seems that the fragile situation in Iraq right will not allow the central government to engage in armed confrontations with the KRG, particularly that the former is still fighting ISIS in the north. That is probably what drove the Iraqi President to propose joint administration of the province as an attempt to resolve the conflict for now. Yet, this does not satisfy the Kurdish aspirations.
However, the KRG may shift its stance, and accept the joint administration to resolve the conflict with Baghdad if Iran and Turkey step up their pressures, either by imposing economic sanctions or carrying out limited military strikes against it. This would be acceptable to the government of Baghdad, which recognize that establishing full control over Kirkuk will not be in its interest, as it will likely lead to escalating security tensions with KRG for years.
Joint Administration
Kirkuk, which is one of the disputed areas between Iraq and KRG, was granted the right to self-determination in a referendum that was supposed to be carried out by the end of 2007, according to article 140 of the Iraqi constitution. However, during the past years both parties were not willing to take this step. Kurdistan did not have adequate military power at that time to protect the anticipated gains, and the Iraqi government was fragile, in post -2003 US invasion era. The Iraqi government, then, did not want to provoke notions of separatism, fearing that such tendencies would threaten its domestic security situation.
Nonetheless, the situation changed dramatically in the last two years, with the increasing influence of Peshmerga forces in Kirkuk and surrounding areas, coinciding with ISIS’ increasing control over Northern provinces, after the withdrawal of the Iraqi army. With the backing of the international coalition forces, Kurdish forces took control of the city in June 2014.
In parallel with its rising military influence there, the KRG recaptured most of the oil fields in the city, including key oil fields such as Bai Hassan and Havana fields. They further regained control over Khurmala oil field, to include the three fields in the pipeline, inaugurated at the end of 2013, which reaches the Turkish port of Ceyhan.
In addition, Kurdistan extended its control over several fields near Mosul, such as Ain Zala, Batma and Sufiya, yet their production is small compared to the Kirkuk fields.
Oil production in Kurdistan (thousand barrels/day)
Source: Under the Mountains: Kurdish Oil and Regional Politics, Oxford Institute for Energy Studies, January 2016
Several oilfields remained under the control of the Iraqi central government, including Baba Gurgur, Baker, and Jambour fields. The state-run North Oil Company operates those fields. Thus, managing the oil fields in Kirkuk is still divided between the Iraqi government and the KRG, which makes exporting oil from the province subject of bargaining between both sides. Tensions escalated as the KRG accused Baghdad of failing to reimburse the KRG’s oil revenues, estimated at 17 percent according to the Iraqi constitution, while the central government opposed the oil deals concluded by the Kurds without its approval.
After several rounds of negotiations that lasted two years, the two parties reached an agreement in August 2016 to export oil via the Turkish port of Ceyhan, splitting the proceeds equally between the two sides, each party take 75 thousand barrels a day, though the total production of the province is 300 thousand barrels a day.
Later, the agreement was breached more than once after Iraq admitted reducing oil exports from Kirkuk, under its agreement with OPEC to cut oil production. Moreover, Iraq signed a memorandum of understanding with Iran in March 2017 to export some of Kirkuk’s oil via Iran, then the agreement collapsed completely in the wake of Kurdistan’s independence referendum on September 25, 2017.
Mounting Tension
Kurdistan referendum led to escalated tensions with the central government in Baghdad, particularly as Iraq stepped up its threats to Kurdistan shortly before the referendum. Nevertheless, these threats did not succeed in preventing the KRG from conducting the referendum on schedule, which resulted in 92.73 percent approving secession. This prompted Iraq to move towards imposing blockade on Kurdistan, while Turkey imposed restrictions on oil trade with Kurdistan. In this regard, the Turkish Prime Minister Binali Yildirim, on September 28, 2017 said “Ankara will deal only with the Iraqi government over oil exports from Iraq”, meaning Kurdistan’s oil too.
Some of the measures taken against Kurdistan entailed Iran and Iraq closing their airspace for the Kurdish region. In addition, the Central Bank of Iraq recently refrained from selling hard currency to the four main Kurdish banks, besides halting all transfers in foreign currency between them.
It seems that the conflict over Kirkuk will get more complicated, as both parties maintain their right to exercise sovereignty over Kirkuk and its oil resources, and neither of them rule out using force to retain control over the province. On September 27, the Iraqi Parliament demanded the KRG to relinquish control of the oil fields in Kirkuk and hand them over to the central government in Baghdad. In addition, it approved the Iraqi Prime Minister Haider Abadi's request to deploy Iraqi troops to retrieve the province. This comes amid evidence confirming that Peshmerga forces strengthened their grip over the entire oil fields in Kirkuk, including Baker and Baba Gurgur fields, among others.
On the other hand, the KRG ignored the Iraqi demands, as the Provincial Council of Kirkuk refused to hand over oil fields to the Iraqi government. At the same time, the President of KRG Massoud Barzani, who visited Kirkuk on October 2, directed Peshmerga forces and other security agencies to protect Kirkuk and Kurdistan against any potential threats.
Possible Scenarios
The Iraqi government recognizes that it is difficult for neighboring countries, especially Turkey, to deliver on its promises to close their borders to Kurdish oil exports. That is due to the extensive trade relations between them, in addition to the Turkish investment interests in the region. All previous considerations would contribute to perpetuate the status quo, namely KRG’s control over Kirkuk and its oil fields. That is probably what prompted the Iraqi Prime Minister Al-Abbadi on October 4 to proactively propose joint administration of Kirkuk and other areas. Although this might look like a compromise from Baghdad’s point of view, it does not of course meet the ambitions of the KRG, which aspires to achieve full independence under the referendum.
In the near future, Kurdistan may change its mind and accept the joint administration option in order to attain a permanent settlement for the conflict with Baghdad concerning the disputed territories, especially if the neighboring countries ratchet up their pressure on the region, through imposing broad economic sanctions.
Yet, the military option will remain on the table too, to resolve the conflict over Kirkuk and its oil fields. Although Iraq might opt to deploy its forces to restore the province, it knows well that this option will not guarantee its sovereignty over the province in a short period. The central government understands that such armed clashes with Kurdistan will likely last for years, creating considerable internal security threats.
