Opinion: Oil’s divisive influence in Iraq

It has long been speculated that oil can be a driver for civil conflict, and one needs to look no further for evidence than the sectarian power politics that is threatening the possible devolution of the Iraqi state.

The recent announcement by the Maliki government that Iraq is seeking to build a 1 million b/d pipeline to Aqaba, Jordan, is not, as it is being painted, evidence that Iraq is seeking to boost its economic building efforts. More skeptical observers have an alternative explanation. They see the Aqaba pipeline plan as a geopolitical hedge. The pipeline announcement is being explained privately to investors and suppliers as a veiled attempt by the Maliki government to have a back-up plan to get oil exports out of the country, should navigation via the Persian Gulf get blocked.

The renewed Iraqi oil-related courtship of Jordan could well be interpreted as an acknowledgement that the long term situation across the region might get increasingly messy, with dire consequences for normal export patterns. In a devolving Iraq, Maliki’s new pipeline effort could be viewed as an admission that relations with the Kurdistan Regional Government (KRG) on the one hand, and Turkey on the other, are so bad that the option to move crude oil produced in Southern Iraq via pipeline to Turkey is not only impossible right now, it may, in fact, disappear permanently. The announcement follows similar efforts by the KRG to forge an independent natural gas export pipeline plan with Turkey, as well as reports that oil is being trucked to Turkey from the KRG without state Iraqi oil marketing firm SOMO’s participation. The Syrian conflict and accompanying deteriorating personal relations between Maliki and Turkish Prime Minister Tayyip Erdogan are changing the map for possible future export flows, and the Jordanian negotiations must be taken in that context.

The tricky bit for Maliki is that even his so-called Jordanian route includes passage through Anbar Province. But Anbar Province has energy export corridor plans of its own. There is speculative talk that a new “Sunni” led Syria could be the conduit route for natural gas exports from the Iraqi Anbar region. And, for Saudi Arabia, Sunni and ethnic ties with populations in Western Iraq’s possibly rich Anbar Province and with segments of the Syrian opposition fighters against the government of Bashir Al-Assad might give geopolitical momentum to the potentially commercial opportunities of a Saudi-Anbar-Syrian route for pipeline gas to Europe. Saudi private sector ties to parties in Anbar and Syria could provide support for increased energy trade between the various regions and is already spurring talk of a Sunni energy corridor.

All these festering geopolitical rivalries and energy-related competition influence Iraq’s already fragile internal political landscape. It is now clearer than ever before that Iraq’s murky constitutional clauses concerning domestic oil and gas development are a major challenge to the nation’s unity. By leaving open the concept that responsibilities for oil field development may fall to local politicians governing the ground under which various oil reserves sit, the constitution laid the seeds for the country’s possible future demise. There are oil resources located geographically within the various domains of sectarian power –the Kurdish North, the Sunni West and the Shiite south. Each region is pursuing its oil and gas interests independently, creating different foreign policies on the ground. The United States over the years has made the problem worse, not better, by encouraging autonomous oil development, with a focus on the income potential and blindness to the divisive downsides.

The promise of an Iraqi oil renaissance sadly seems to have failed to be the glue holding Iraqi society together. Ironically, the very infighting over those riches may mean that there will be less, not more, oil that needs any of these competing export routes. As relations among local parties become more poisoned, so is the investment climate for foreign direct investment. So far, the Iraqis are finding no takers for ExxonMobil’s 60 percent stake of the giant West Qurna-1 oilfield. Last month, Lukoil made clear it would decline to bid, leaving an even narrower field of possible investors.

It should be a cautionary tale for the entire region: a rich geology is not all it takes to be a haven for oil investment. Fair and equitable national rules for managing the sector and dividing the spoils will, as time goes on, be the most important variable for oil development in the Middle East.