At first glance, the Kurdistan Regional Government (KRG) seems to have come out ahead from the takeover of Mosul, Iraq’s second-largest city, by the Islamic State of Iraq and al-Sham (ISIS). Taking advantage of the power vacuum left by the flight of the Iraqi security forces from Mosul and its environs, the autonomous Kurdish authority has sent its peshmerga fighters into large swathes of northern Iraq, most notably Kirkuk and its oilfields. These gains have given the KRG new forms of leverage with Baghdad in negotiating Kurdish nationalist demands. They also have triggered expectations of Kurdish statehood among the Kurdish population of Iraq, a long-sought goal that could be bankrolled by large-scale, independent Kurdish oil exports.

Yet a deeper look into the Mosul crisis and regional politics reveals a more complex scenario with uncertain outcomes. The political arena is volatile, with the emergence next door of a Sunni Arab-populated region straddling the porous boundary between Iraq and Syria, and policed by ISIS and/or radical Sunni Arab nationalist groups. Securing Kurdish claims to land, oil and revenues will not only require leveraging Baghdad and warding off Islamic extremism, but bargaining with Sunni Arab nationalist groups, alongside Turkey and Iran. To what extent has an increasingly fragmented and unstable Iraqi state with more ungoverned spaces created new opportunities and challenges for Kurdish political aims in Iraq? What are the implications for regional stability and US policy in Iraq?

Leverage with Baghdad

The Kurds’ most evident gain from the ISIS takeover of Mosul is territorial. By quickly filling the void left by the Iraqi security forces, the Kurdish peshmerga have extended the Kurdistan Region to include all of the disputed territories and its populations — increasing its territory by about 40 percent. Most significant is Kirkuk, which not only represents the “heart of Kurdistan” but contains important Iraqi oil reserves and infrastructure for the export corridor to Turkey. By controlling these territories the KRG has in some ways forced a de facto resolution of Article 140 of the Iraqi Constitution — which was supposed to have settled territorial claims before 2008. Securing Kirkuk also gives the KRG potential access to refineries, greater volumes of crude and larger revenues. KRG officials have already stated their plans to utilize the Kirkuk fields to export crude through the Kirkuk-Ceyhan Oil Pipeline to Turkey. These gains have strengthened Kurdish nationalist sentiment across the region while feeding into local populations’ expectations of statehood.

Kurdish territorial gains and the ability of Kurdish forces to provide security may also give the KRG greater power in negotiating its political demands with Baghdad, particularly regarding oil exports and revenues. With the raging Sunni insurgency and risk posed to Iraqi oil infrastructure by ISIS, Prime Minister Nouri al-Maliki may have little choice but to negotiate with the KRG, at least in the immediate term. A bargain may also be necessary for Maliki as a requisite to form a government or even retain his position as prime minister.

Still, the extent to which the KRG can achieve its territorial, energy and revenue demands is unclear. The politically expedient, anti-Maliki alliances formed among ISIS, Sunni Arab Baathists and Sunni tribes may have facilitated the swift fall of Mosul, but they are unlikely to be sustained even in the medium term. Similarly, the relationship between Sunni Arab nationalists and the Kurds is precarious. Groups that identify as Sunni Arabs may fiercely oppose Maliki and demand regime change, but most are committed to the territorial integrity of Iraq or their own region in which they can enjoy greater autonomy, revenues and rights. The extent to which a Sunni Arab region emerges alongside or against ISIS, and the potential for Sunni Arab groups to be better incorporated into the Iraqi state in the future could enhance Arab nationalist tendencies that may not favor Kurdish separatism or nationalist claims.

Kurdish territorial gains are also likely to be challenged by other Iraqi groups. Even though the peshmerga have secured control of all the disputed territories and are the only capable forces in Iraq to defend them, the KRG has not gained consent from non-Kurdish Iraqis to incorporate these lands into the Kurdistan Region. Already some Iraqi Turkmen have threatened to mobilize against the peshmerga if the KRG attempts to fully integrate Kirkuk into the Region. Similarly, while some Sunni Arab Iraqi leaders have developed political and commercial ties with Masoud Barzani, president of the Kurdistan Region and Turkish Prime Minister Recep Tayyip Erdoğan, they are unlikely to accept unilateral Kurdish claims to Kirkuk or parts of Nineveh province, lands that many residents consider Arab or Iraqi territory. The status of Kirkuk has been a matter of dispute between the Kurds and the Iraqi government for over 50 years — it was a major factor in the revival of armed Kurdish rebellion in 1974. How the KRG manages the territories and negotiates with Arab and Turkmen communities will affect its ability to consolidate its land gains. A unilateral KRG annexation of Kirkuk or Nineveh could lead to Arab backlash and violence.

Long-standing divides within Kurdish politics also pose a challenge to effective negotiation with Baghdad. Despite Barzani’s promises that the KRG would not involve itself in Sunni-Shi‘i conflict, the Kurds are squarely in the middle of it. The two leading Kurdish parties — Barzani’s Kurdistan Democratic Party (KDP) and the Patriotic Union of Kurdistan (PUK), led by Jalal Talabani — have distinct political and commercial ties to Turkey and Iran respectively, apart from general Ankara-Erbil relations. Erdoğan’s alliance with Barzani has encouraged the tacit KRG-Sunni Arab pact to weaken Maliki and avoid engaging ISIS. Iran, meanwhile, is pressuring the KRG, mainly through the PUK, to fight ISIS, negotiate with Baghdad and remain part of the Iraqi state. These competing agendas hamper the ability of the Kurds to maneuver against the Iraqi government. The pressures of having to defend 40 percent more territory, including a 620-mile border with ISIS-controlled areas, enhances the potential for ISIS and other radical groups to infiltrate the Kurdistan Region, despite the peshmerga presence.

Empty Coffers

A neighboring region governed by ISIS or emboldened Sunni Arab nationalists could further complicate the KRG’s ability to secure large-scale, continuous oil exports on its own terms. Many of the contentious issues that have so far prevented an agreement between the governments in Erbil and Baghdad could complicate relationships between the KRG, Sunni Arab groups and ISIS. Even if the KRG assumes control of Kirkuk’s fields and the pipeline that runs through Mosul, it might have to bargain with ISIS and other Sunni leaders over revenues, pipeline access and security. (Attacks on the pipeline by al-Qaeda have shut it down since March 2014.) As part of the Iraqi state, the Kurds still need support from oil-producing provinces in the heavily Shi‘i south and backing from the Iraqi parliament for their export and payment claims, which has become more challenging given the pact Barzani has made with Sunni Arab groups.. Even before the capture of Mosul, Iraqi Arabs (regardless of denomination) criticized the KRG’s attempt to sell oil to Turkey without Baghdad’s approval.

The Mosul crisis may have temporarily distracted attention from such unilateral oil deals, but it has not alleviated the KRG’s serious financial problems. In fact, the ongoing oil export and revenue dispute has made a settlement with Baghdad as pressing for the Kurds as it is for Maliki. Despite nearly a decade of oil sector development, real economic growth is uncertain, and the KRG remains dependent on Baghdad for about 95 percent of its budget, which in 2013 was about $13 billion — all of which is tied to Iraqi oil sales. This financial vulnerability is especially acute given that 70 percent of the KRG budget is allocated to civil servant salaries. The KRG also has obligations to contractors and international oil companies estimated in the billions of dollars. The influx of hundreds of thousands of refugees into the Kurdistan Region from Syria and other parts of Iraq, as well as the drive to secure an expanded territory and the populations therein, has only made the need for reliable revenues more urgent.

With no reserves in its public banks and growing debts to lenders — including $2 billion to Ankara and another $1 billion to private institutions — the KRG will either have to negotiate with Baghdad or continue borrowing to secure $14-16 billion to meet its immediate fiscal needs. The KRG aims to eventually use its own export earnings to replace the shortfall from the federal government. But the possibility of selling enough Kurdish crude to self-finance the region even in the next few years is unlikely. Even if the KRG could negotiate a deal with ISIS and Sunni Arab groups over pipeline control and revenue-sharing, it lacks the infrastructure to reach the necessary volumes, estimated at about 600,000-700,000 barrels per day net at $100 per barrel to sustain its growing budgetary demands. Since the KRG’s branch line that feeds into the Kirkuk-Ceyhan Pipeline can only export about 300,000 barrels per day, the KRG would still need to use the other half of the Kirkuk-Ceyhan line (it is two parallel pipes),or construct another pipeline entirely. All of these scenarios require agreements between the KRG, Sunni Arab groups, ISIS, Ankara and Baghdad. Building another line entirely would also require significant revenues and willing investors.

Security conditions permitting, the KRG will likely continue to truck small amounts of crude to Turkey and Iran. The political and security vacuum will also enable the KRG to continue to circumvent Baghdad and export small amounts of crude through the Kirkuk-Ceyhan pipeline, although under legally contentious circumstances and at discounted prices.  Still large-sale continuous exports of Kurdish crude are unfeasible at the moment. Instead of laying the groundwork for an independent or highly autonomous Kurdish state, the crisis has underlined the KRG’s vulnerabilities and made all the more pressing the need for the KRG to seek additional  revenue sources. The KRG is more deeply indebted and dependent on Ankara, as well as Baghdad.

Policy Implications

Complex and shifting alliances, as well as the KRG’s financial dependency on Baghdad and Ankara, challenge the idea of an independent, stable Kurdistan emerging from the ashes of a dismembered Iraq. The apparent ISIS takeover of Mosul has deepened the fragmentations in Iraq and created politically expedient alliances that have secured the Kurds’ short-term interests. Yet long-term wins depend not only on a Kurdish bargain with Baghdad, but KRG deal-making with other Iraqi stakeholders and with neighboring states. Any truce between Erbil and Baghdad, at least in regard to oil exports and revenues, will need support from Ankara, and Erdoğan in particular. Additionally, until territorial claims and resource- and revenue-sharing agreements are determined as part of a legal framework accepted by all Iraqi communities, the KRG-Baghdad-Ankara energy dispute will continue to fester. As the KRG’s territory is landlocked between Iran, Turkey and Syria, it will remain vulnerable to geopolitical pressures and positioned for commercial opportunities that will frustrate secession, at least for now.

In this fluid political context and amidst deep sectarian tensions, the US should attempt to do no harm. While continuing to work with different Iraqi groups in negotiating a more inclusive government in Baghdad, the US should not be involved, or perceived to be involved, in leading regime change. Additionally, given the ethno-sectarian cast to the Iraqi crisis, the US should eschew policies or narratives that essentialize ethno-sectarian identities over Iraqi nationalism. Although voices in Washington have advocated for Kurdish autonomy within Iraq, or complete secession, since at least 1991, and US policy after the 2003 invasion favored significant Kurdish self-rule in the context of a federal Iraqi government, the US should continue to support a sovereign, if decentralized, federal Iraq, not its partition.

Ongoing US support of Iraqi state sovereignty does not indicate it has been a “bad friend” to the Kurds, but rather, its commitment to the Iraqi Strategic Framework Agreement and to managing a complex and unstable environment and minimizing the unintended consequences of its engagement. The US government’s stated interest in assuring regional stability and the economic prosperity of Iraq, inclusive of the Kurdistan Region, recommends continued efforts to broker an oil export and revenue-sharing agreement between Baghdad and Erbil, and also recognition of Turkey’s role in such a deal. Indeed, the stakes have risen since March 2014, when a proposal allowing the KRG to export 100,000 barrels per day in return for a larger budget and funds to pay international oil companies failed due to disagreements over authority and payments. The present crisis could lend itself to a more amenable context for negotiation, at least a short-term deal. At minimum, it could alleviate the KRG’s growing financial pressures and the potential destabilization of the Kurdistan Region.


Author’s Note: The views expressed are my own and do not reflect the official policy or position of the National Defense University, the Department of Defense or the US government.

How to cite this article:

Denise Natali "A New Normal for Iraqi Kurds?," Middle East Report Online, July 03, 2014.

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