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Another failure of Croatian oil policy in the Middle East

On 25 September 2017, an independence referendum was held in the autonomous Kurdistan Regional Government (KRG), with final results showing the vast majority of votes, around 93 percent, cast in favor of independence. In the following days, we saw crowds poured out into the streets waving flags and singing patriotic songs. Indeed, for them it surely was a day of joy, after three years of serious financial crisis. In the KRG official media, we saw several recruited international observers who gave extremely positive remarks about the referendum, praising democratism and freedom, multiethnicity and gender equality, correcting historical injustices, as well as heroism of Peshmerga soldiers. One of them was a Croatian politician Vesna Pusić, as we previously reported.

We also saw self-confident statements by Barzani-led regional government, whose officials characterized the referendum as binding, and the most confident among them was their president Masoud Barzani. His goals were pretty obvious: to distract the attention from internal economic and political problems (as his presidency expired a little over two years ago), to put pressure on Baghdad and to consolidate control over disputed and oil-rich Kirkuk area, occupied by his armed forces. He counted on foreign support if the situation worsens, particularly that of the "international community" (i.e. the United States and allies), his economic partners and their oil lobbies, even on balancing between Iran and Turkey. His confidence was so high that just a day before the referendum was held, he triumphantly stated: "Our borders lie where our tanks stop."

Today, a less than a month after, his words proved to be prophetic. A few days after the above-mentioned unilateral game, Turkey and Iran imposed a limited blockade of Iraqi Kurdistan, deployed military contingents on the border, and reached a deal on increasing Turkey's natural gas imports from Iran, exclusively for the purpose of reducing imports of Iraq Kurdistan's crude oil. Baghdad also imposed it's own measures and restrictions against the land-locked region, leaving it economically isolated from the outside world. Furthermore, the United States officially took a neutral position, called for dialogue and supported a unified Iraq. In the coming weeks, the economic situation worsened considerably, deepening gap between Kurdish politicians, especially between two main parties – the Kurdistan Democratic Party (KDP) and the Patriotic Union of Kurdistan (PUK).

On 15 October 2017, the Iraqi Security Forces and Popular Mobilization Forces (Hashd Al-Shaabi) launched a major military operation to restore control of the disputed Kirkuk Governorate and areas around vital pipelines. Increasing internal disputes among KDP and PUK supporters led to the collapse of defenses, mutual accusations of betrayal, and a complete Peshmerga retreat. The Iraqi government's redeployment mission was completed in only four days, with comparatively little violence since Kurds mostly withdrew without a fight. In the meanwhile, KRG official media ridiculed itself with contradicting reports regarding victimhood vs. heroism. Shortly after the debacle, Kurdish prime minister Nechirvan Barzani called for resolving all the problems in the framework of the Iraq Constitution in a peaceful way, and KRG agreed to freeze outcome of the referendum to begin dialogue.

Ultimately, the biggest loser by far is Masoud Barzani and his ruling feudal family. The independence referendum was a blatant miscalculation which failed miserably, and not only Erbil isn't in the position for setting conditions to Baghdad, but also yesterday's control of oil-rich territories is irretrievably lost. Over 90% of Iraq Kurdistan's budget comes from oil revenue, and the city of Kirkuk and three major oil fields in the province produce some 250,000 barrels per day, previously accounting for 40% of Iraqi Kurdistan's oil exports.

Everything seemed so well at the beginning of 2011 when Erbil reached deal first with the American oil giant Exxon, and soon afterwards also with the Chevron, French Total and Russian Gazprom. It increased tensions between Baghdad and the KRG, but projects continued. However, after World oil prices began a plunge in 2014, Kurdish economy spiraled into crisis along with many other oil-producing countries in Africa and South America, especially Venezuela. Ironically, it's all a result of the US-Saudi oil price war directed against Iran and Russia, but proved to be more costly to their own strategic allies. The security situation also deteriorated due to Daesh attacks, and in 2015–2016 oil giants Chevron and Exxon have pulled out of several exploration blocks. The debt of the Kurdish government may be upwards of $20 billion.



Under heavy financial pressure, in 2016 Iraqi Kurdistan has started with serious violations of a national law, constitution and an OPEC agreement. Article 111 of the Iraqi Constitution affirms that "oil and gas are owned by all the people of Iraq in all the regions and governorates." Iraq's 2017 budget obliges Iraqi Kurdistan to export 550,000 barrels per day total from its oil fields, including the oil of Kirkuk Governorate, exclusively through the transnational State Oil Marketing Organization. The revenues, according to the budget, should go to the federal public treasury. Still, the KRG exported larger oil quantities via Turkey without the knowledge of Baghdad, which led Iraq to violate its OPEC obligations to cut total output by 200,000 barrels per day. During the month of November alone, the KRG exported 587,646 barrels per day through Turkey without any coordination with Iraqi authorities.

The most interesting part of the whole story are importers of such cheap oil. According to the ClipperData, the biggest importer of crude from Iraqi Kurdistan in 2016–2017 was Italy, followed by Israel and Croatia. Over a half million barrels of crude oil is transported daily via pipeline from Kirkuk to the Turkish port of Ceyhan, then loaded into tankers and finally departing for ports of Augusta, Ashkelon and Rijeka. In the first half of 2017, the biggest importer was Israel with approximately 150,000 barrels per day, or above half of total oil imports. This is obviously congruent with the long-term Israeli energy plans declared in 2003 when Netanyahu and other Israeli officials announced that "Iraq-Israel oil line will open in near future." Their plan was to secure a friendly postwar regime in Iraq, achieve a deal with Jordan, and pump oil from Kirkuk fields to the Israeli shipping seaport and petroleum-refining city of Haifa.

Beside geopolitical calculations and considerations, primarily an idea of turning independent Kurdistan into an American (and Israeli) military base between Iraq, Iran and Turkey, this illegal oil transfers also explain enthusiastic support for the referendum. Netanyahu was a sole leader to endorse independent Kurdistan in past few days, while Italian and Croatian officials took a more neutral stance, at least openly. Some Italian politicians, like Umberto D'Ottavio, publicly supported Erbil against Baghdad, and the KRG representative in Rome, Rezan Qader, claimed the Italian government is not against the independence of Kurdistan. Considering her long political career and recent energy engagements, Croatia's Vesna Pusić may be grouped in the same category with political lobbyists like Bernard Kouchner and Bernard-Henri Levy, and also with oil lobbyists like Peter Galbraith and Zalmay Khalilzad. As a result of her earlier stunts, Croatia already lost leased oil and gas fields in Syria, and now the same fate is also sealed in Iraq. Luckily for Mrs. Pusić and other democracy-lovers, alleged advocates of correcting historical injustices, one terrible injustice has definitely been corrected – Kurdish illegal exporting of Iraqi oil is, indeed, a history.

Filip Vuković

Filip Vuković is a Serbian politologist and investigative journalist from Belgrade, covering the western Balkan area for Serbian, English and Italian outlets. His focus is on nationalism, ethnic tensions and economic policy in the post-Yugoslav area. Currently, he is preparing a PhD dissertation at the University of Padua.