- (Analysis) Iraqi Kurdistan: the EU’s Next Major Energy Supplier? - December 19, 2022
REPowerEU, the European Union’s bold new energy action plan, was unveiled in May of this year with two main goals, end the EU’s dependence on Russian oil imports and tackle climate change. Regarding the first goal, given the Kremlin’s willingness to weaponize the EU’s high level of energy dependency on Russia, it is imperative for the EU to decouple from Russia’s energy industry in the long term and ensure Europe’s resilience to future energy supply shocks. One of REPowerEU’s proposed solutions is the diversification of the EU’s energy suppliers. Anticipating such a step, the European Commission has developed mechanisms to improve the collective bargaining power of member states in purchasing energy. However, the question remains, who can act as a new reliable energy supplier to the EU?
Barzani’s Energy Vision
During the 2022 Global Energy Forum held in Dubai, Prime Minister Masrour Barzani of the Kurdish Region of Iraq (KRI) took the stand to highlight the meteoric rise of his region’s energy industry, confidently assuring that “Kurdistan will soon become an important source of energy for the world’s growing demand.” He went on to make the bold claim that “We (the KRI) will become a net exporter of gas to the rest of Iraq, Turkey, and Europe in the near future, and help meet their energy security needs…the potential to meet the local needs including other parts of Iraq but also export to Turkey and onto Europe is there.”
Iraqi Kurdistan’s Energy Gold Rush
With one of the last great oil and gas frontiers, the KRI is estimated to hold a whopping 45 billion barrels of oil reserves and 5.67 trillion cubic meters of natural gas reserves (3% of global reserves). Fossil fuel exploration in the region dates back to 2005 when Iraq adopted its first democratic constitution. The KRI was recognized as a federal entity endowed with the right to exploit its own natural resources. In vertu of this constitutional right, the Kurdistan Regional Government (KRG) promulgated the Kurdistan Oil and Gas Law. This established a Ministry of Natural Resources and endowed it with the power to contract international oil companies (IOC). Thanks to the involvement of IOCs and the U.S. government, energy production in the region has been significantly scaled up, making the KRI a major energy supplier.
Ankara The Generous Middle-Man
This fact is not overlooked by Turkey, the main benefactor of the KRI’s fossil fuel industry. Both oil and gas exports from the KRG travel through pipelines to Turkey where they are sold and shipped overseas. Since 2013, Ankara and Erbil have constructed a network of pipelines delivering over 600,000 barrels of oil per day and 10 billion cubic meters of gas per year, with future expansions in progress.
Besides collecting a substantial transit fee from the Kurd’s use of its pipelines, developing the KRI’s gas and oil production plays into Ankara’s domestic and regional interests. Domestically, the growing demand for energy coupled with a lack of its own resources pushes Ankara to cultivate new sources to fuel its economic growth. The ruling AKP party’s courting of its own Kurdish population to curry its electoral favor also serves as a motivation for better ties with the KRI. Regionally, Ankara aims to act as an energy bridge between Iraqi Kurdistan and Europe which gives it a point of leverage in negotiations with the EU. Turkey also needs the KRI as a bulwark against an increasingly hostile central government in Baghdad that is falling under the influence of Iran, Turkey’s regional competitor.
Oppositions to Barzani’s Vision from the Outside
These developments have attracted the ire of the Iraqi Federal Government (IFG), which considers the contracts with Turkey illegal. The IFG has long-standing disputes with the KRG over the management of its energy resources as it regards deals made to export Kurdish energy without its consent as unlawful. Baghdad has adopted various pressure tactics in the past to halt Kurdish exports, such as denying the KRI its share of the national budget, suing the KRI in internal and international courts, lodging complaints against Turkey, and temporary blockades of Kurdish oil fields. These efforts have only pushed Erbil to seek economic independence by rapidly scaling up its pipeline infrastructure.
This status quo came to a brutal halt in February when the Iraqi Supreme Court ruled the Kurdish Oil and Gas Law of 2007 to be unconstitutional. The ruling obliges the KRG to cede all oil and gas produced in the KRI to the IFG while empowering Baghdad to annul contracts between Erbil and IOCs. The decision came just a few days after a meeting between Prime Minister Barzani and Turkish President Erdogan where they discussed opportunities for exporting Kurdish natural gas exports to Europe. Following this decision, Baghdad has launched legal actions against IOCs operating in the KRI, as well as annulling four contracts between the KRG and IOCs. Facing the threat of litigation and being banned from access to the more lucrative oil sector of southern Iraq, several western IOCs have scaled back their activities in the KRI.
While Baghdad establishes legal chokeholds on the KRI’s energy industry, Tehran has exerted more stringent policies of hard power. On March 13th, 12 missiles rained down on the villa of Baz Karim Baranzji, a Kurdish oil mogul and owner of the KRI’s biggest energy company, KAR Group. Iran’s Islamic Revolutionary Guard Corps (IRGC) took responsibility for the attack claiming that Baranzji’s residence was a “Zionist strategic center of plotting evil.” Iraqi and Turkish officials believe that the strikes were in response to Israel’s involvement in a plan to deliver Kurdish gas to Turkey and beyond. The villa was the site of meetings between Israeli and US energy officials and specialists who spoke of a new pipeline that would pump Kurdish gas to Turkey. More strikes were followed by Iranian-backed militias on the KRI’s largest oil refinery at Kawergosk and on Khor Mor, the KRI’s largest gas field.
It would appear that the main objective of Iran’s missile diplomacy is the discontinuation of Kurdish gas exports as its expansion threatens Tehran’s own position as a gas exporter to Turkey and Iraq. Exports to Iraq and Turkey made up 64% and 33%, of Iran’s total gas exports in 2020. This means virtually all Iranian gas goes to these two countries. At a time when the Iranian economy suffers from crippling Western sanctions and the possibility of them getting lifted in negotiations for the revival of the nuclear deal between Iran and the West, energy exports to Baghdad and Ankara constitute a vital economic lifeline for Tehran.
Baghdad is also heavily reliant on Tehran for gas as it flares the majority of its “wet” natural gas (by-products of oil extraction) and exploits little of its “dry” gas fields. The Iraqi Kurds are the polar opposite as they have made excellent use of their natural gas. Erbil has achieved energy independence and currently provides Baghdad with a stable and cheaper alternative to Tehran, which has cut gas flows to Iraq several times due to production issues. In light of this opportunity, it is all the more confounding why gas-starved Baghdad decided to penalize the KRG for developing its fossil fuel industry. A likely explanation, given the huge amount of influence Tehran wields on Iraq’s political scene, is that pressure from Iran contributed to the decision to strike down the KRG’s Oil and Gas Law.
However, the biggest obstacle preventing Prime Minister Barzani from realizing his dream of the KRI becoming a major energy supplier to Europe is the fractures within his own government. Barzani’s Kurdistan Democratic Party (KDP) and Bafel Talabani’s Patriotic Union of Kurdistan (PUK) jointly govern the KRI as a confederacy. A crisis has gripped this uneasy coalition as disputes over the Kurdish candidacy for the Iraqi presidency and management of gas exploitation pushed both parties onto the verge of abolishing the KRG and establishing separate administrations. Complicating the situation further is that KRI’s two biggest gas fields, Khor Mor and Chemchemal, lie in PUK-controlled regions, essential regions needed for KDP gas to reach Turkish and European markets.
Considering the significant reserves in the PUK’s gas fields (15 trillion cubic feet) production can be increased to cover domestic needs while leaving a surplus for exports. Yet disagreements between the two parties have already hindered development. The PUK blocked the implementation of a December 2021 agreement between the KDP-led Kurdish government and the KAR group to upgrade and extend gas pipelines to the city of Dohuk, refusing technicians entry to its fields.
Iraqi Kurdistan as Europe’s Next Major Energy Supplier?
Assaulted on different fronts by both lawsuits and explosive projectiles, Erbil remains steadfast in its commitment to maintaining and developing its energy autonomy. Yet the vast potential of its energy reserves will remain unrealized as long as the political deadlock between the KDP and PUK persists. The stalemate over the candidacy for the Iraqi presidency, constitutionally reserved for a Kurd, finally ended on October 13th when the Iraqi parliament elected KDP-backed politician Abdul Latif Rashid. The fierce contest between the two parties led relations to deteriorate to their lowest point since the civil war between the two factions in the 1990s.
Considering all the factors of instability plaguing the KRI, PM Barzani’s vision to pump gas to Europe will remain a pipe dream for now. When it comes to the EU’s own ambition to decouple from Russia diversifying energy suppliers remains an important facet of strengthening the Europe’s energy security. However, it should not take precedence over the plan’s other measure – the massive scale-up of renewables in power generation. For the EU to achieve true energy autonomy, as well as radically decrease its carbon footprint to combat climate change, investment in renewables is essential for producing cheap and clean energy within the bloc. Brussels would be wiser to concentrate on measures such as the EU Solar Energy Strategy than invest in pipelines that may never become operational due to civil strife or geopolitical competition. The future of Europe’s energy security lies not beyond its borders, but within it.
Iran has intensified its strikes against the KRI. The regime claims that secessionist Iranian-Kurdish militants based in the region are responsible for the massive protests that have gripped the Islamic Republic in the wake of the death of Mahsa Amini in police custody. In an attempt to divert public attention away from the excesses of the regime, Tehran is promoting a secessionist narrative that blames the civil unrest on Iranian and Iraqi Kurds. The most recent attack consisted of ballistic missile and drone strikes that killed 26 Kurdish militants. Tensions are higher than ever with the Kurdish militants refuse Tehran’s calls to disarm and Tehran builds up its forces and threatens cross-border operations to clear out the militants.