Since then, some of these companies have pulled out of the region, considering further operations too risky; other foreign partners have yet to receive their pay-outs, as promised in their contracts, from the cash-strapped Kurdistan Regional Government.

But that has not been the case with Russian energy giant Rosneft. Last February, Rosneft intensified its relations with Kurdistan, signing an oil supply agreement. Seven months later both parties formalized their commitment to build the Kurdistan-Turkey gas pipeline. As Reuters reported, the company lent the region hundreds of millions of dollars in loans guaranteed by future oil sales.

Russian engagement in Iraq part of a wider strategy

Increased Russian engagement in Iraq seems to be part of a wider Kremlin strategy to become one of the key players in the Middle East. Yet, since the deals were signed without consulting Bagdad first, many are wondering what the future of such energy investments – Russian plans to fund a natural gas pipeline in Iraqi Kurdistan, developing gas fields in five blocks, not to mention improving gas transport infrastructure in the region – is likely to be. Then there is the question of what happens to the KRG lenders, including Russia.

Oil production in Baji, Kirkuk (photo: picture-alliance/AP)
Iraqʹs ambitious oil project: last December the government in Baghdad invited tenders for a new oil pipeline extending over 350 kilometres to Turkey. The plan is to export oil from the northern province of Kirkuk. In the autumn of 2017, government troops regained control of the oil-rich region from Kurdish fighter. The new pipeline with a projected capacity of more than 1 million bpd will follow the course of an older pipeline dating back to the nineteen eighties

As foreign investors face sensitive internal disputes in Iraq which may escalate in the future, they will have to adopt a highly balanced approach. Major Western oil companies are still involved both in the KRG and the oilfields under control of the central government.

Guney Yildiz, visiting fellow at European Council on Foreign Relations, notes that in current political circumstances, it will be very difficult for them to risk alienating the central government by siding with the KRG. Russian Rosneft, however, has the luxury of approaching the deals without too much regard for the internal politics in Iraq.

Although Rosneftʹs deals with KRG have been realised amid the crisis in Kurdistanʹs relations with the central government and despite the fact that the deal has been concluded independently from Baghdad, it seems that Russian and Iraqi authorities managed to overcome initial disagreements.

New violent clashes unlikely

Will disputes over Kurdish oil revenues and issues related to the scope of KRG autonomy lead to new violent clashes between Iraqi Kurds and Iraqi forces in the future? This seems unlikely, owing to the dramatic shift in the balance of power since last autumn. Despite their central role in fighting IS, the strategic position of the Iraqi Kurds is now greatly diminished.

The post-referendum crisis has hit the KRG hard, both in political and economic terms. For Yildiz, the dispute over Kurdish oil revenues may cause instability firstly within the KRG region itself.

Government misrule and problems with the KRG has opened up space for IS to start regrouping again in places, including Kirkuk. The Kurdistan Regional Governmentʹs (KRG) revenues have been slashed by about half since the loss of Kirkuk, further depleting the regionʹs finances which have been reeling under Iraqi budget cuts since early 2014 and a recent budgetary reshuffle.

Stasa Salacanin

© 2018

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