The KRG-Iran Pipeline: Political theater or game-changer?
On August 15, 2016, IRIS fellow Cameron Bell delivered a lecture on his ongoing research on the KRG-Iran pipeline agreement. His research, grounded in political science theories, focuses on ideology, interest, and institutions that act as potential vectors of success or failure of this agreement. His talk highlighted the gaps in knowledge and, thereby, the questions that remain unanswered. A podcast of the lecture will be available shortly.
Background: What is the KRG-Iran pipeline deal about?
The pipeline would move 250,000 barrels per day (bpd). Beyond this, however, very few details are publicly available at the time being, and conflicting information is circulating. It is still unclear, for example, what the starting point –either Kirkuk or Koya –and end point of the pipeline –either refineries in Tehran or Iranian ports in the Persian Gulf –would be. This type of detail can drastically shift the stakes at play.
Another issue being debated in the possibility of building a second pipeline as part of this deal, from Kho Mor to Khanaquin, effectively shoring up disputed territories (DIBs) by proactively connecting them to grid. In other words, linking Kahnaquin to the KRG through an energy route would change facts on the ground and alter the Erbil-Baghdad power balance with regards to regarding DIBs claims.
Discussions were initiated back in 2014, under very different political and security circumstances. A series of disruptive events affected bargaining leverage on both sides: outages on the Ceyhan pipeline caused by electrical and technical malfunctions (over 18 in two years), oil infrastructure attacks by both Daesh and the PKK, resource theft, as well as reports of the KRG channelling sour oil (crude containing higher levels of sulphur) through Ceyhan, thereby selling at a much lower price.
Nonetheless, in March 2016, talks renewed and a technical agreement was reached in April. The signature of this agreement was expected in May 2016, but since then, negotiations were stalled.
Cameron emphasized the fact that this potential KRG-Iran pipeline remains a regional issue –not an international one. The planned route and volume ialso limit its impact on global oil markets. In other words, unless the issue is tied to Kurdish independence, which he deems unlikely, key stakeholders will be neighbouring state and non-state actors.
Turkey, importantly, currently benefits from a de facto monopoly on Iraqi Kurdish oil, which is sold through the Ceyhan pipeline. On the other hand, Turkey’s natural gas consumption being very high and exclusively supplied by Russia, it could be inclined to support a KRG-Iran pipeline deal that would allow it to tap into Iraqi natural gas resources.
For Iran, this potential pipeline seems to bear only benefits. In the context of the opening of its borders following the nuclear deal with the United States, it holds more leverage to set the cost. Iran will also ultimately be the one exporting and/or refining the Kurdish crude –both of which generate important revenues.
Saudi Arabia, on the other hand, would most likely look upon this new pipeline unfavourably, as it would give Iran, an important regional political rival, more weight in the competition for crude oil market shares in the Middle East. In this sense, Cameron argued, it is possible that the kingdom would offer to support the KRG in other ways in exchange for holding off on signing the agreement.
While it was stated that this issue remains of regional importance only, both Iran and the KRG would probably benefit from enlisting the support of a superpower. Achieving this is however unlikely, as it would tie their hands in their relations with Turkey and Iran over a non-vital interest. However, the United States, for example, could offer support through statements by American international oil companies (IOCs), which may influence negotiations (foreign investment, blacklisting issues) without binding the American government to a strict position.
Path Dependency and Issue Linkage
Looking at this potential pipeline deal from a policy analysis perspective allowed Cameron to appreciate the ways through which it is tied to other important political and economic issues, both nationally and regionally.
At the national level, given Tehran’s close relationship with Baghdad, it seems unlikely that the Iranian government would move forward with the project without Iraqi government’s approval. This will entail, Cameron points out, an internal agreement between Baghdad and Erbil on the status of Kirkuk, one of Iraq’s disputed internal boundary (DIB).
Furthermore, it also seems unlikely that the deal would go through in the current climate of intra-Kurdish political tension; if not political unity, at least cooperation between the two leading parties will be necessary to see the agreement implemented.
Cameron concluded by highlighting the potential long-lasting consequences of this deal. As he mentioned, oil extraction and transportation infrastructure is costly to build and modify. In this sense, such an investment could in fact lead the KRG to become over reliant on Iran, were the relation between Erbil and Ankara and/or the regional geopolitical context to change.
In this sense, Cameron put forth the idea that the existing crude trucking industry could be institutionalized; energy relations between the KRG and Iran exist, but they would need to be made transparent in order to maximize profitability.