FLASH : Erbil vs. Baghdad: Oil and Weapons caught in the middle of a power struggle

While negotiating their deals with the Kurdish Authorities, international oil companies were no doubt aware that they were running the risk of having their contracts questioned by the government of Baghdad at the first political crisis between Erbil and the central government. Similarly, the arms deals negotiated by the central government are also running the risk of being reconsidered. That is what is happening today. Amid the growing tension between Baghdad and Erbil, the president of the autonomous region of Kurdistan, Massoud Barzani, is pushing to suspend arms deals signed by the central government with international allies on behalf of the National Army, while the Prime Minister, Nouri al-Maliki, is putting pressure on oil companies to cancel their deals with the Kurds.

  • Pressure from Baghdad on US and French Oil Companies : The recurrent political disputes between the central government and the regions over the control of oil revenues, and the absence of a petroleum law, jeopardize the activities and interests of international oil companies involved in sensitive areas such as the Nuni region of Kurdistan. The autonomous northern province of Kurdistan has negotiated several contracts with foreign oil companies, including ExxonMobil and Total. Baghdad fears that increased oil autonomy might encourage separatism in the North and considers all oil deals signed without passing through the central government as illegal. Prime Minister Nouri al-Maliki warned on 19/06 that such contracts could lead to war and urged President Barack Obama to intervene to stop Exxon Mobil from proceeding with the deal. Similarly, Hussein al-Shahristani, deputy prime minister for energy, warned French companies that all contracts in Iraq would be ended if a deal is signed with a regional government without passing through Baghdad (Total had in fact announced earlier this year that it is negotiating potential deals in the Kurdistan region). Putting pressure on traditional partners, the government of Nouri al-Maliki is inviting new foreign companies to invest in the Iraqi oil and gas sector. The invitation delivered by deputy prime minister Rowsch Shaways (Russia Today, 23/06) to Russian companies is tempting, especially in such an internal and regional political context.
  • Pressure from Erbil on US and French Defence Companies : Tension between the central government and the Kurdish autonomous region is increasingly becoming personal between Nouri al-Maliki and Massoud Barzani. After hosting Tarek al-Hashemi, Iraq’s Sunni Vice-President accused of terrorism by Maliki’s government, and denouncing the latter’s dictatorial tendencies, Barzani declared his opposition to the F-16 deal as long as Maliki controls the Iraqi government and warned the US that the jets could be used against the Kurds. Since Nouri al-Maliki appears to be keen on carefully handling relations with the French, especially with the new French administration, talks about a new Mirage deal are resurfacing again. We believe that, in such a context, a potential deal with the French government over this type of armaments would also be targeted by the Kurds.

The immediate and direct impact of domestic political tensions in Iraq, especially between the central government of Nouri al-Maliki and the autonomous region of Kurdistan, on the implementation of strategic programs is evident when it comes to developing the oil and gas sector in Kurdistan and to rearming the Iraqi Air Force in Baghdad. This could provide new opportunities for other international partners, such as the Russians. But in the long run, we expect continuity in the strategic choices made by the Iraqis in favour of their American (and French) partners, even if the door is left open for the Russians (and other outsiders).

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