x Abu Dhabi, UAEMonday 24 July 2017

Self-defeating oil feud drives divisions in Iraq

Last year, progress on oil-revenue sharing raised hopes of agreement on other issues, including joint military manoeuvres. New spats over oil revenue must not derail these gains.

At 2.3 million barrels per day, Iraq exported more oil on average in March than it had at any time after 1990. Not since Saddam Hussein's disastrous invasion of Kuwait had Iraq shipped more crude.

This should have been a celebratory milestone. And yet, Iraq's economic re-emergence has been overshadowed by a costly and destabilising argument between Baghdad and the Kurdistan Regional Government. It is yet another example of Prime Minister Nouri Al Maliki's government consolidating power, which in turn is deepening the divisions within the country.

That is not to say that Kurdish leaders in Irbil are blameless. On Sunday, the KRG stopped exports of crude oil to the central government, saying that producers were owed $1.5 billion (Dh5.5 billion) in back payments; Baghdad argues that it has lost more than $6 billion because the KRG hasn't shipped its agreed quota.

This is, above all else, a political disagreement. And it's a disagreement that is harming both sides. Kurdish leaders are asserting their autonomy that, in terms of state institutions and security forces, is already a fact on the ground. A charitable view is that Mr Al Maliki is trying to unify a national energy sector; an alternative explanation is that Baghdad is trying to monopolise national resources for the exclusive benefit of his constituency.

The casualty in this case is the national economic project. After more than three years of haggling, Iraq's oil law seems no closer to being passed, which in turn harms foreign investment in the sector. Baghdad objects to the deals the KRG has struck independently with oil majors; on Monday, Exxon Mobil confirmed that it had frozen an exploration contract in the Kurdish region because of pressure from Baghdad.

It is not in Irbil's interest to go it alone. More than half of the KRG's oil is sold through unofficial channels, including some via the Iranian port of Bandar Abbas at below-market prices, according to Abdul Kareem Al Luaibi, Iraq's oil minister. It's always going to be an uphill battle if Baghdad is an impediment instead of an ally. And hanging over all of this is the disputed status of Kirkuk and surrounding areas, which still could be a flashpoint for conflict.

Last year, progress on oil-revenue sharing raised hopes of agreement on other issues, including joint military manoeuvres. Both Baghdad and Irbil need that progress, but neither side seems able to see their shared interests.