Thursday, December 20, 2012

Is Iraq on the Brink of Another Civil War?

December 20, 2012
BEIRUT, Lebanon — At the beginning of 2013 ExxonMobil will be getting ready in order to conduct some surveying activity in the Iraqi area that is disputed between Erbil and Baghdad. This move may easily be the straw that breaks the camel's back, i.e., the event that may drag Iraq down again into the scary coils of another civil war.

Right now along the contested border are stationed on one side, the Peshmerga forces, i.e., the Kurdish armed forces, and on the other side, the Iraqi Army. Notwithstanding the fact that currently both sides are scaling back — although with no defined timetable — from this dreadful standoff, there is always the risk of the occurrence of a simple provocation, which could precipitate inadvertently the situation. Following the orders of  Prime Minister Nouri al-Maliki of Iraq and President Massoud Barzani of the Kurdistan Regional Government (K.R.G.), the troops are stationed along the border and, according to some estimates, they are as many as 60,000 soldiers. In some locations they are as close to each other as 100 meters. This proximity is risky and for the stability of the whole Middle East, which is already plagued by the Syrian events, any additional Arab-Kurdish skirmishes have been avoided.

In October 2011, ExxonMobil signed oil deals directly with Iraqi Kurdistan for six exploration blocks. ExxonMobil bypassed the central government, which is the only authority capable of approving energy deals with reference to all Iraq, the K.R.G. included. To make things worse, at least two of the six exploration blocks (the Qush and Bashiqa blocks) are located within the disputed territory that is technically part of the Nineveh governorate, but that since 2003 has been administered by Kurdish people, who occupied these lands at the beginning of the war against Former President Saddam Hussein of Iraq.

Immediately after the signature of the deals started ExxonMobil's quarrel with Baghdad, which threatened the cancellation of the American company's 20-year technical service agreement (T.S.A.) related to the development of the giant West Qurna-1 oilfield located in the Basra province in southern Iraq. Complicating the already strained relations between Erbil and Baghdad, ExxonMobil is willing not only to stop its operations in Iraqi Kurdistan, but also to plan exiting its $50 billion stake in West Qurna-1. The U.S. company has taken this decision after a careful assessment, which has shown that Erbil's contracts are much more interesting and valuable for the company's balance sheets. And similarly, other international oil companies like U.S. Chevron, Russia's Gazprom and France's Total are all giving their preference to the K.R.G. energy deals than Iraq's.

Since last November, tensions have been increasing after some clashes between forces belonging to Erbil and forces belonging to Baghdad. The initial episode (on November 16) was linked to an unpaid gasoline check (oil for a strange twist of fate is always at the core of many issues in the Middle East) in the small town of Tuz Khurmatu located in the disputed areas. It's noteworthy  to underline the futility of the episode from which severe consequences followed. In fact, in this small town a serious conflict exploded when some federal forces tried to arrest a Kurdish gasoline seller who asked protection to some Peshmerga soldiers. The futility of this event well testifies that tensions between the two parties had been simmering for months before this episode. The last of these clashes happened on Tuesday, December 18 ,when troops from Iraqi Kurdistan fired shots against an Iraqi Army helicopter north of the ethnically mixed city of Kirkuk. And it's worth remembering that in the previous two days (Sunday and Monday) at least 30 people had been killed during these clashes. The disputed areas are a strip of ethnically mixed land that separates Iraq from the Kurdish-administered territory in the north. Disputed areas include the city of Kirkuk, which has more than 10 billion barrels of proven oil reserves. 


Iraqi officials clearly stated that if ExxonMobil began its operations in the disputed area, the Iraqi Army would start hostilities because it would judge these oil operations alike to a declaration of war. "The prime minister has been clear: if Exxon lays a finger on this territory, they will face the Iraqi Army" told the Washington Post Sami al-Askari, an Iraqi M.P., who is also close to Prime Minister Nouri al-Maliki. Similarly, Deputy Prime Minister Hussain al-Shahristani of Iraq reaffirmed one more time that if ExxonMobil decided to operate in the disputed territories it would be doing a serious mistake.

The situation might with no doubt scale back. ExxonMobil won't drill until next summer, although in early 2013 it will initiate some surveying operations. The Iraqi government in the last months has tried to convince the American government to discourage ExxonMobil from starting operations in 2013 in the K.R.G. (The company's past operations show that ExxonMobil always adheres to the letter of its contracts and that the company well respects the agreed schedule). In reality, without being too much involved into ExxonMobil's deals, American officials have partially tried a difficult mediation between Erbil and Baghdad.

Last week, President Jalal Talabani of Iraq, a Kurd, with American help was able to negotiate an agreement between Mr. Maliki and Mr. Barzani. The basic idea was first of all to lower the tone of their public speeches and then to form a committee with the goal of making safe the disputed areas. Up to now, neither site has demobilized its forces; and President Talibani is currently recovering in Germany from a stroke he suffered two days ago. This is indeed a very bad news for the appeasement process.

The real issue is that both Mr. Maliki and Mr. Barzani have some reasons not to retrench. For Mr. Barzani the existence of a common threat is useful in order to compact and unify the fractious parties within Iraqi Kurdistan, while for Mr. Maliki it's of paramount importance that all the K.R.G. energy riches are controlled by Baghdad. Erbil's budget is still very dependent upon federal funding. A good power lever for Baghdad could be to cut the 2013 federal funding envisaged for the K.R.G. And it this regard, Maliki-aligned politicians are building up a Parliament coalition oriented toward this end.

In Baghdad there is the idea that Erbil has more to lose from a civil war than Baghdad. This assumption is based on the fact that Big Oil companies are swarming into the K.R.G. because of its excellent security and improved business environment. Instead, for Baghdad a civil war won't change consistently its difficult relations with oil companies because those companies investing in the Basra region already have to compute costs linked to political instability. This assumption concerning who lose more between the two contenders is very debatable to say the least. Stability is useful for both Iraqi Kurdistan and Iraq. Energy companies operating in Iraq have already difficult challenges to overcome: daring contract terms; risk of violence; lack of infrastructure (for instance: pipelines; oil pumping; and storage facilities); and red tape. Honestly, hypothetically while waging a civil war in the north it's not very clear how Baghdad could improve the attractiveness of its energy sector in the south.

For sure Baghdad needs to change its energy policy given the recent failures it has experienced. Negotiations between Ankara and Erbil are moving ahead and there is the will to sign a massive oil deal following which a Turkish government-backed new company could be drilling for oil and gas in Iraqi Kurdistan, while at the same time it could be constructing a pipeline to transport energy riches from Kurdistan to Turkey — without utilizing any Iraqi infrastructure. If implemented this plan means no other thing that a real economic independence of Erbil from Baghdad's federal funds. And today the main linkage between the K.R.G. and proper Iraq is based on just economic transfers from Baghdad to Erbil. And as usual: Forewarned is forearmed.