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After Mosul

Competing claims for northern Iraq will leave the post-IS settlement rife with new geopolitical risks

The fall-out of the campaign to reclaim Mosul and the surrounding province of Nineveh will be a central preoccupation of Iraq in 2017. Control of the north will need to be resolved and will be a thorny matter. This is already a key problem in Kirkuk. There, Baghdad exercises authority over the North Oil Company (NOC), which runs oilfields in Kirkuk proper; the Patriotic Union of Kurdistan (PUK), based in Sulaymaniyah, has political control of Kirkuk's provincial institutions and security control of most of the province including the NOC-administered fields; while Masud Barzani's Kurdistani Democratic Party (KDP) has security control of the oil-rich district of Makhmur, which the PUK claims belongs to Kirkuk, as well as the pipeline system through Turkey upon which Kirkuk depends to export oil.

A messier patchwork should emerge as Mosul is liberated from Islamic State (IS). The military offensive (underway as this book went to press) has been structured so that Baghdad will gain control of Mosul itself, while Barzani-controlled Kurdish forces will take and not relinquish the Nineveh Plains, east and north of Mosul. Two other flashpoints are less certain. One is Telefar, west of Mosul, a Turkmen city from which Shia Turkmen were cleansed by IS in 2014 and on which Shia militias are focused. If they can, they will make a base there, to use for advances into Syria. The other flashpoint is Yazidi-populated Sinjar, where Barzani's KDP and the Turkey-based Kurdistan Workers Party (PKK) - both with Sunni Arab allies - will fight for control. Although federal Iraq and the Kurdistan Regional Government (KRG) are cooperating on Mosul, they are on opposite sides in Sinjar - both the Yazidi and Sunni Arab groups fighting the KDP in that area are backed by Baghdad.

Bear in mind that federal (Arab) Iraqi military units launched their Mosul offensive from Kurdish territory, the first instance of such cooperation. It was the result of a public rapprochement between federal prime minister Haider al-Abadi and Kurdish leader Masud Barzani, whose KRG presidential term expired in 2015, but who remains in power thanks to the paralysis of political institutions in the region. Yet this security cooperation is not matched by economic rapprochement, and despite a partial agreement on exporting Kirkuk oil, no broader reconciliation on national energy policy is likely.

The conflict in Nineveh has other geopolitical implications. Turkey has been training a proxy force of Sunni Arab fighters politically loyal to Osama al-Nujayfi, an Arab leader from Nineveh and Turkey's primary ally. Nujayfi wants to establish Nineveh as an autonomous region, similar to that which exists in the KRG. Erbil and Duhok, two provinces dominated by the KDP, visibly constitute a kind of Turkish protectorate.

Oil ties together Turkey, the KDP and Nujayfi's plan for Nineveh, where reserves are tucked into the northeast. KDP controls these reserves, which allowed the KRG to sign oil contracts there (among which was ExxonMobil's 2012 exploration deal, including reserves in the Bashiqa area).

The Turkey-KRG oil relationship remains central to the tension between Baghdad and Erbil. The 2013 federal budget was passed by the Arab majority over Kurdish opposition in March that year because it contained a clause allowing Baghdad to cut off the KRG's monthly budget share if Kurdistan started exporting oil independently through Turkey. The KRG duly did so in December 2013 and Baghdad cut off the KRG's budget. Oil prices began their descent six months later and the KRG's economy went into a tailspin.

In 2015, KRG energy minister Ashti Hawrami secured arrangements with oil traders in Turkey to provide the government with a steady stream of $0.8bn a month in exchange for exports of 0.55m barrels a day via Ceyhan port. The falling oil price has made it increasingly difficult for the KRG to service these debts. On top of what it owes to mainly Turkish banks and oil companies that have not been fully paid for work in the KRG, the region may now owe as much as $20bn. Politically this is disastrous. Even if the will could be found for a national oil deal between Erbil and Baghdad, it would flounder, because the federal government will never honour debts accrued by the KRG on its own.

An Abadi-Barzani deal on Kirkuk oil exports in August offers some hope for 2017. Kirkuk oil is divided into two categories: oil from NOC's fields, in PUK territory; and oil from Makhmur, which Baghdad and the PUK view as part of Kirkuk, but which the KDP view as part of Erbil. Until March, the KRG exported NOC-administered oil as its own, but Baghdad cut off the flow because the KRG was keeping the export money. The August agreement splits exports from these fields 50:50, with Baghdad and the KRG each entitled to export 75,000 b/d. The deal was partially implemented in September.

Further complicating things is Baghdad politics, especially intra-Shia competition. Former prime minister Nuri al-Maliki is chafing to regain power and has made brinksmanship with Turkey and Irbil his key line. He is aligned with Iran and the Shia militias it backs, while Abadi, from the same political faction as Maliki, has staked his office on ties to the US. This in turn has required working with the Kurds on security. That kind of cooperation, already partial, cannot be assumed to last, and the fall-out in northern Iraq of the Mosul offensive could be severe.

This article is part of Outlook 2017, our annual book looking at energy market trends for the year ahead. To purchase a copy, click here

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