Security & Geopolitics

The Kurdistan Referendum for Independence and its Implications for Iraqi Oil Outlook

The referendum for the independence of Iraqi Kurdistan showed an overwhelming support for complete separation from Bagdad. Many variables are involved in this process, the most relevant being the oil in the Kurdish north of the country.

On September the 25th the Iraq’s semi-autonomous northern Kurdish region held a referendum, where the population was asked to express its will in favour or against full independence from the central government of Bagdad.
The result was overwhelming, with more than 90% of the voters endorsing the split from Bagdad.
The importance of the northern region for the central government is enormous, as it is extremely rich in hydrocarbon resources, especially oil.
After having fiercely opposed the referendum by any means, Bagdad has to accept the result and deal with a stronger Kurdistan, more determined than ever to obtain full independence.

Bagdad, the Oil and the Kurds

Since the early 2000, because of the war against Saddam Hussein, Iraq has suffered years of severe political instability, than hindered its ability to maintain oil production at stable levels. However, the oil output was never interrupted and at the end of the war the country managed to increase production.
With proven reserves equal to almost 150 bb and production reaching almost 5 mb/d, Iraq is today the second-largest OPEC producer.
This abundance is however not evenly distributes, with most oil resources concentrated in the Shiite areas of the south and in the ethnically Kurdish north, and very little in areas controlled by the Sunni minority.
It is estimated that about 20 percent of Iraqi oil is concentrated in the northern region, around the cities of Mosul, Khanagin and especially Kirkuk, that is the flashpoint exactly because of its massive oil wealth.

Bagdad has always produced and sold all of Kirkuk’s oil (that is considered to be around 40 percent of Iraq’s total), but the sabotage of the Bagdad’s pipeline by the hand of Isis in July 2014 overturn the situation. The Bagdad army pulled back and the Kurdish peshmerga streamed in, saving the city and taking control.
Currently, three out of five oil fields in the area of Kirkuk are under the control of the Kurds and even though a deal reached in August 2016 – ensuring that both Kurdish and Iraqi governments get a share of oil – is still in place, Bagdad wants full ownership of the oil fields back.

The Iraqi divide and the proxies

The referendum came in a context already made difficult by many internal and external factors, on which the consequences of the vote can have a tremendous impact.
Amid political instability caused by internal sectarian disputes between the Shiite majority and the Sunni minority, and the aggression of Isis, the central government of Bagdad is trying to maintain control over the entirety of the territory. Loosing part of it to the Kurds would only weaken its authority.

Tormented by years of armed conflicts, Iraq has experienced a severe financial crisis that Bagdad is trying to overcome by keeping oil production at record levels, to compensate the loss of revenues caused by the collapse of crude prices.
Giving how rich in oil the northern Kurdish region is, it comes with no surprise that the central government fiercely opposed the referendum, with the prime minister Haider al-Abadi defining it “unconstitutional and Illegitimate”.

International support was very little, the US and the UK opposed the referendum, calling for dialogue between Erbil and Bagdad.
In the region, Syria, Iran and Turkey were all strongly against the vote, worried that a plebiscite could spark independence ambitions within their own Kurdish minorities.

Among general opposition opponents, Erbil could count on two supporters, namely Israel and Russia.
The reasons of the Israeli support of Kurdistan independence are both rooted in the past and the result of current political calculations.
On the one hand, the Jews and the Kurds have a long history of mutual support that goes through centuries, at the point that it is not unusual to see Israeli flags appearing at Kurdish rallies.
Nowadays, a breakaway Kurdistan could be extremely valuable to Israel in opposing Iran, which has oppressed its Kurdish minority.

Russia, unlike the international community, supported the desire for independence of the Iraqi Kurdistan and tried to find its own advantage in the dispute.
In fact, only a few weeks ago, right before the referendum, Rosneft announced its latest investment to help Iraqi Kurdistan develop its natural gas industry with the construction of a $1 billion pipeline that will supply European markets. the details of the deal are still unknown, but with this move Russia openly sided with the Kurds in their fight for independence.

What the consequences?

The result of the vote is clear: Iraqi Kurds want to be completely independent from Bagdad.
The referendum was a point of no return, the Kurds in northern Iraq won’t settle for anything less than full independence.
Or maybe they will, for now.
The referendum is not binding; the central government is not compelled to do anything following the vote and the KRG knows it very well.
However, such an overwhelming majority in support of independence can hardly be ignored and it will be used by the KRG to pressure the central government and open new negotiations regarding the status of Kirkuk, a broader frame for discussing Kurdistan independence, and of course oil revenues.
The Kurds need the revenues coming from the sale of oil that is located in their territories and are determined to share them with no one.

Massoud Barzani, the Kurdish president will step down before elections in November, having exceeded his term in office. But before he does, his aim is to at least initiate the process towards full independence, and the vote was the first step of it.

Despite enthusiastic celebrations in Erbil, Iraqi Kurdistan is very likely to have to wait before achieving full independence. In this process much is at stake and the end result is not to be taken for granted.
The result of the referendum could represent a step in the independence process of Kurdistan, that will without fail pass through oil.