Iraq and Iran signed a memorandum of understanding last week to study the construction of a cross-border pipeline to export crude oil from the disputed northern Iraqi fields of Kirkuk through Iran. The agreement on a new pipeline immediately triggered fears of geopolitical consequences in the region amid increasing Middle East disorder entangling Iraq and its powerful neighbours. It also comes as new US President Donald Trump escalates his rhetoric against Iran, including accusations that Tehran “is rapidly taking over more and more of Iraq”. Moreover, such a plan, if implemented, would likely directly impact the dream of Iraq's Kurds of an independent state in their northern autonomous enclave. Iraq said the agreement, signed by its Oil Minister Jabbar Luaibi and his Iranian counterpart Bijan Zanganeh on 20 February, envisaged exporting Iraqi oil through Iranian territory and probably to the Asian market. No details were available on the construction of the project, but initial reports have suggested that the planned pipeline will guarantee continued crude supplies to oil refineries in northern Iran. In exchange, Iran will supply Iraq with badly needed oil products from its southern refineries. Some reports have also suggested that the project could lay the cornerstone for bilateral cooperation in the oil industry to include a joint pipeline and an integrated exporting terminal on the Straits of Hormuz. The plan, however, has raised many questions about the feasibility of the project and its political ramifications, in particular the geopolitical stakes involved. Technically speaking, experts expect that the new pipeline will experience serious difficulties. It is planned to traverse the northern part of the 1,200km border between the two countries that runs through high mountains, the Zagros range, which form a geographical boundary. While the rugged mountains are expected to pose a formidable physical challenge, the pipeline is widely seen as also being vulnerable to disruption in a region where rival factions are vying for power. Another problem that could cast shadows on the project is the expected high cost of its construction, which commentators say is unjustified by its economic benefits as Iraq can still rely on other routes to export its crude oil to the international market. Iraq is the third-largest producer in OPEC, the international oil-producing cartel, and 95 per cent of the country's budget relies on oil revenues. However, a slump in oil prices and the campaign to drive the Islamic State (IS) group from the territory in Iraq under its control have plunged the government into a severe financial crisis. The unveiling of the plans for the new pipeline also comes amid a long-standing dispute between Baghdad and the Kurdistan Regional Government (KRG) over the latter's endeavours to export oil from the northern Kurdish region independently from the rest of Iraq. Kurdish Peshmerga fighters seized the oil-rich Kirkuk province in summer 2014, exploiting the turmoil caused by advances made by IS and the collapse of the Iraqi security forces. Soon the KRG began to export oil from the Kirkuk fields through a pipeline to the Turkish Mediterranean port of Ceyhan. It also set a target of producing one million barrels per day (bpd) of oil in 2015. The KRG is believed to be exporting over 500,000 bpd of crude oil through the pipeline, including some 150,000 barrels from the Kirkuk oil fields. Though a deal was reached with the Baghdad government that revenues from the exports through the pipeline would form part of the KRG's share in the country's federal budget, disputes have emerged over the quantities exported and the KRG's share in national oil revenues and the budget. As part of its endeavour to guarantee control over the oil fields, the KRG has also offered to sell certain oil fields to Turkey for $5 billion without consulting the federal authorities in Baghdad. The oil in the KRG is one of the main points of contention between the Masoud Barzani-led administration in Erbil and Baghdad on the one hand and among the Kurdish political factions on the other. Regarding the new pipeline to Iran, the KRG has said that it has not been consulted by Baghdad or Tehran on building the pipeline, and it has made a veiled threat that it might stop the project. “Exporting Kirkuk's oil to Iran without consulting with the Kurdistan region will mean problems, and Iran knows this very well,” KRG liaison officer with Tehran, Abdallah Akraye, told the Kurdish media outlet Rudaw last week. Kirkuk's Kurdish Governor Najmaldin Karim has also repeatedly objected to plans to export oil to Iran. Earlier, he warned that the province would not allow the federal government to ship Kirkuk's oil to Iran via tankers. “We will not let tankers take Kirkuk's oil to Iran,” Karim was quoted as saying by Rudaw, citing environmental hazards. He said the tankers should pay extra fees for polluting Kirkuk's air and negatively affecting its roads. The governor also claimed that Baghdad owed Kirkuk “large sums of petrodollars” in allocation for provinces producing oil in Iraq. “We will not allow a single oil tanker to transfer Kirkuk oil to Iran without heeding the conditions determined by the Kirkuk Province,” Karim was quoted as saying. As part of its efforts to battle for control of Iraq's northern oil resources, the KRG has been seeking ways to diversify export routes to foreign markets. Last year, the KRG said it was negotiating with Tehran on plans to build a pipeline that could transfer as many as 250,000 bpd of Kurdish oil to Iran. Leaked media reports suggested that the deal was pending the hammering out of the technical, commercial and political details of the agreement that would have allowed Kurdistan to send crude oil to refineries in northern Iran. If it had materialised, Kurdistan would have added another export venue to sell its oil on the international market. Two factors seemed to have been behind the unlikelihood of such a project, however: Iran's reluctance and rivalry between the Kurdish factions. While Iran rejects any Kurdish independence move in its eastern neighbour, such a project would trigger a wider conflict between Barzani's Kurdistan Democratic Party (KDP) and rival factions. While the control of oil in Iraqi Kurdistan has been a major reason for friction between Baghdad and Erbil, export pipelines have been the source of competition by regional powers competing for lucrative oil-transport contracts and influence. Kurdistan is believed to have an estimated 45 billion barrels of crude oil reserves. The Kurdistan region could also hold as much as 200 trillion cubic feet of natural gas reserves. The United States, which helped the Iraqi Kurds in establishing their autonomy first by setting up a no-fly zone over the northern areas in 1991 and later by toppling the regime of former Iraqi president Saddam Hussein in 2003, was first in tracking energy developments in Kurdistan and in pursuing opportunities for American companies. Turkey has established a strategic relationship with Barzani and his KDP-run administration, and Ankara has been actively involved in the inner workings of the KRG government's oil-development projects, including a deal to buy complete oil fields in Iraqi Kurdistan. Clearly, Turkey has been taking advantage of its relationship with the KDP and has been exploiting Iraq's oil without the agreement of the central government in Baghdad. Increasing Turkish involvement in the KRG oil sector is believed to be behind Iran's bid to extend its influence over Iraqi Kurdistan. The plan to link the oilfields of Kirkuk with Iran seems to be in line with these attempts. While the Middle East remains a powder-keg fraught with sectarian, religious, political and border disputes, energy geopolitics also seem to be increasingly fuelling its conflicts. Last month, Iran said a new gas pipeline to Iraq had become operational. The project is believed to be part of a proposed giant natural gas pipeline running from Iranian fields towards the Mediterranean via Iraq and Syria to supply European customers. Qatar and Russia are other countries competing with Iran to transport gas to Europe through Syria. Turkey, which stands at the crossroads of Asia and Europe, is hoping to be the transit country for gas supplies from the Middle East to the European market. For Iraqi Kurdistan, which has been hoping to generate finance and lay the economic foundations for Kurdish independence, this fierce competition for energy routes and geopolitics may be bad news. The oil and gas wealth and the pipelines are showing that energy is a double-edged sword that could be a key obstacle to Kurdistan's independence.
