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Iraq: In for the long haul

The recapture of Kirkuk was swift, but the Baghdad-Erbil crisis is far from over

The core of the dispute between Baghdad and the Kurdish Regional Government (KRG) is sovereignty over disputed territory. But the fate of oil is inextricably bound up in the same dispute. At issue is the ownership of oilfields and export routes. On the one side there's the state-owned North Oil Company (NOC), with its Kirkuk fields now back in government hands; and on the other, companies operating under the KRG umbrella.

In a matter of days, the Iraqi oil scene has undergone a huge change. For many months, prior to the latest crisis, close to 0.6m barrels a day of crude oil was flowing from northern fields to the Turkish port of Ceyhan for export, with the KRG pocketing the revenue in response to Baghdad's decision to stop payments to Erbil from the state purse. Today, less than half of that volumean estimated 200,000-240,000 b/dis flowing through the pipeline.

The decline in production is the result of technical problems at pumping stations associated with the Avana Dome of the Kirkuk oilfield and the Bai Hassan field. The Iraqi oil ministry has accused the Kurds of having removed some of the equipment from the pumping stations to disrupt production before they withdrew. The Kurdish Peshmerga took over the fields in 2014 in response to the Islamic State surge in northern Iraq.

Oil issues of one kind or another are likely to complicate whatever attempts are made to find a political solution to the crisis. The federal authorities have long accused the KRG of acting in breach of the Iraqi constitution by signing agreements with international oil companies and exporting oil independently of Baghdad. The Kurds deny that their actions are unconstitutional.

Playing the oil card

The governments in Baghdad and Erbil know very well that neither of them can survive without oil exports and revenues. Each will try to use the oil card for its own advantage. For now, the federal government has the upper hand because much of the Kurds' oil production came from fields in the Kirkuk area. Furthermore, the Kurds rely totally on Turkey's cooperation to get their oil to international markets and are well aware that President Erdogan strongly denounced the holding of the independence referendum, the event that sparked the latest crisis.

Neither side is in the mood to compromise. To underline this point, the KRG this week signed production sharing agreements with Russia's Rosneft covering five blocks in territory under its control. This prompted the Baghdad government to repeat its warning to IOCs that they face legal action if they reach deals with the KRG.

The Kurdish forces are now back behind pre-2014 lines and Kirkuk is back in federal hands. But the overall crisis, with its many dimensions, is a long way from a solution.

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