Oil revenue may provide more economic independence to Iraq’s Kurds

by James Brandon

As Iraq's government takes shape after months of political deadlock, the country's leading Kurdish politicians have promised to work toward a cohesive and peaceful Iraq.
"If [Prime Minister Jawad] al-Maliki quickly establishes a powerful government that includes all groups, he will be an asset for the Iraqi people," said Jalal Talabani, the Kurdish president of Iraq, after Iraq's Parliament approved his second term and named Shiite politician Mr Maliki to replace the embattled Ibrahim al-Jaafari.

The Kurdish desire for independence, however, still runs deep. And with parts of Iraq increasingly unstable and growing more Islamic, experts say the Kurds, who are relatively secular, are working quietly to consolidate and extend the autonomy they have enjoyed since 1991.
The Kurdish Regional Government, which has run the Kurd's autonomous zone in northern Iraq since the early 1990s, recently has signed contracts with foreign oil companies to explore for new oil fields in Kurdish-ruled areas of Iraq.

Experts say they hope the revenue generated from these deals could provide greater economic, and thus political, independence from Baghdad.
"The Kurds are offering attractive terms to companies that are willing to take a gamble on the legal situation," says Rafiq Latta, a Middle East editor of the Argus Oil and Gas report in London. "And some small oil companies are prepared to take the bait."

The Norwegian oil firm DNO has been quickest off the mark, followed by Canadian firm Western Oil Sands. DNO began exploration in northern Iraq in 2004. But recently it announced that it would be able to begin pumping oil from one newly discovered field near the city of Zakho in early 2007.
At present Kurdistan's annual budget comes from its share of Iraq's overall oil revenues, which are distributed according to population. As a result, the Kurds receive 17 % of Iraq's overall $ 30 bn annual oil revenues. Iraq's oil exports, however, are mainly from the Shiite-dominated south -- meaning that Iraq's Shiite rulers, theoretically at least, could shut down Kurdish northern Iraq's economy at will.

Kurdish oil aspirations are also challenged by poor security and the Constitution, which states that, unlike oil exploration, contracts to repair existing oil fields must be negotiated by the Oil Ministry in Baghdad. Earlier, Shamkhi Faraj, head of marketing and economics at the Ministry of Oil in Baghdad, estimated that Iraq's oil industry needed $ 25 bn to repair war damage and replace old equipment and infrastructure.
So far the Shiite-controlled Ministry of Oil has been largely unsuccessful in signing contracts to repair the oil fields. Experts say that foreign companies are worried by possible insurgent attacks, but also by the political uncertainty of Baghdad. Consequently, the Kurds have been unable to fully repair the oil fields around Kirkuk, largely under Kurdish control since 2003. This is a source of frustration for the Kurds, as the fields contain around 15 % of Iraq's oilwealth.

But even if the Kurds could fund the reconstruction of oil facilities in Kirkuk themselves -- as some are now suggesting -- this would mark only a start. The Kurds would also have to build new pipelines to export their oil.
"Under Saddam the oil fields were very badly damaged," says Mr Latta. "Water was pumped into them as cheap way to increase output, and a huge amount of foreign investment is going to be needed.”
"And even then it's not just a simple matter of having oil reserves and turning on the taps," he says. "Managing that investment will require a lot of expertise, which the Kurds simply don't have."

The Kurds have, however, at least consolidated their physical control over Kirkuk's oil. Before the US invasion in 2003, Kirkuk was a mainly Arab city. Today Kurds are the majority, having driven out many of the Shiite Arabs brought in by Saddam Hussein to "Arabize" the city.
"Those who were brought to Kirkuk by Saddam should leave and then there should be a referendum," says Azad Jundiani, head of the media office of the Patriotic Union of Kurdistan (PUK) -- one of the two main Kurdish political parties.

But a recent move by influential cleric Moqtada al-Sadr indicates that Shiites are trying to counter Kurdish control of Kirkuk. The Washington Post reported that "hundreds of Shiite Muslim militiamen have deployed in recent weeks" there. The newspaper said as many as 240 fighters loyal to Mr Sadr have arrived to the city.
Almost as important to long-term Kurdish ambitions is Tal Afar, an Iraqi city that's ethnically Turkish but Shiite by religion. It lies between Mosul and the Kurdish enclave of Sinjar near the Syrian border.

"Tal Afar is the Kurds' access route to Sinjar, and through Sinjar they have access to Syrian Kurdistan," explains Joost Hiltermann, a Middle East analyst at the Brussels-based International Crisis Group. In other words, if the Kurds can also take and hold Tal Afar, then their dream of a greater Kurdistan remains alive.
"They claim Tal Afar to be a Kurdish area and a place where many Kurdish live but, in fact, it's an important milestone on the road to the creation of Greater Kurdistan," says Dr Hiltermann.

In the past few weeks fighting there has revived awareness of Kurdish vulnerability, especially as reports circulate that Iranian and Turkish troops are concentrating along the borders of Iraq's Kurdish north. Many Iraqi Kurds are increasingly aware of the obstacles to greater independence. Both Kurdish political leaders and ordinary citizens are resigning themselves to remaining part of Iraq for the foreseeable future.
"The Kurds desire to rule themselves," says Farhad Auny, head of the Journalists' Syndicate in Arbil. "But at the same time it is not to the benefit of the Middle East, the international community or the Kurds themselves to ask for independence now."

And to this end the Kurds are starting to think the unthinkable and begin a process of forgiving their Arab compatriots.
"Since the establishment of Iraq 80 years ago the Kurds have been exploited and tortured by all Iraqi governments," says Mr Auny. "We are not going to talk about what we have suffered from the Arabs but it has taught us that we must build a modern and developed country.
"The Kurdish people are flexible and forgiving but they never forget," he says. "To hate is to be weak. You cannot grow good crops in a soil of hatred."