In 2007, a new era began in Kurdistan when its regional parliament allowed them to utilize their oil and gas reserves. This led to the creation of the Ministry of Natural Resources for oversight. Nonetheless, Baghdad's relationship with Erbil deteriorated due to Kurdistan's independent oil and gas shipments through the Kurdistan pipeline that linked with the Turkish pipeline and headed for the Ceyhan port in the Mediterranean Sea. Baghdad responded by cutting off KRG's share of the federal budget and sued Turkey, culminating in an oil supply suspension on March 25, 2023.
Five months after oil shipments from Kurdistan were halted, the shipments ceased at the start of September 2023 despite a quick agreement between the KRG and the Iraqi federal government and both sides' hopeful positive remarks on quickly restarting the export process. In this dossier, the trilateral or bilateral meetings have failed to resolve the disputes, pushing a real trilateral solution further out of reach.
Considering this, Kurdistan's oil export future is highly nuanced and dependent on all actors, including global and regional major powers.
Image: Oil Minister of Iraq Hayyan Abdulghani
As a matter of fact, Kurdistan’s oil is more influenced by regional and international interests than local requirements. Kurdistan’s oil fate is no longer dominated by the two major parties leading the regional government. As local party battles have intensified over the last several months, a lack of oil revenue has driven them farther apart, reducing their ability to stand up to foreign interests in decisions about Kurdistan's oil.
Kurdish parties are divided among themselves, especially those within the KRG, making it easier for external factors to undermine the territory's constitutional autonomy. In order to pass the ongoing state's hydrocarbon law, it may be beneficial for the region to unite the largest Kurdish parties.
In the future, Kurdistan's petroleum sector will likely depend on adherence to the interim agreement, especially regarding budget legislation and the formation of a federal hydrocarbon law. Any deviations from the agreement could lead to radical changes in the sector.
Baghdad and Ankara now determine when and how Kurdistan can resume oil production and access international markets. Baghdad may support exports if Kurdish parties cooperate, but domestic use of Kurdistan's oil may pose financial and administrative challenges.
There is a tendency for oil-exporting governments to have more influence in international politics if they have higher export capacities. International partners may be less willing to invest in the region if the KRG's role in global energy security continues to be marginalized, accelerating the decline of the territory's oil industry.
For Kurdish leaders, convincing the United States and Russia that Kurdish oil and gas poses no threat to their interests is a key international strategy.
Potentially driven by significant changes in oil prices or global market dynamics, future shifts in the international oil market may impact the decision to restart Kurdistan's oil production.
Oil production could temporarily be halted due to Kurdish and Iraqi opposition groups' reactions to the Baghdad-Erbil oil accord.
Europe's gas market balance may affect Kurdistan's oil industry, depending on Europe's natural gas demand.
The response of oil firms in Kurdistan to contracts with the KRG, if the Iraqi federal government offers them direct engagement with Baghdad, may influence the dynamics of the industry and lead to potential conflicts.
Interests of Turkey: The possibility of Turkey returning to independent oil exports may affect the financial attractiveness of different agreements.
Various scenarios could emerge for Kurdistan's oil and gas industry, ranging from a resumption of exports under the Erbil-Baghdad deal to a continued halt with increased Iraqi pressure. Kurdistan's oil sector remains deeply uncertain because the outcome depends on the intricate interplay of these factors.
