Can oil save Iraq?

Bill Keller's recently published NY Times Op-Ed, "Syria is not Iraq," conspicuously omits one of the  main differences between the two countries, namely Iraq's enormous hydrocarbon wealth - both oil and  natural gas.  While the Western media's has focused almost exclusively on sectarianism, there has been little analysis of how oil, rather than sectarian identities, shape Iraqi politics.  What is the role of oil in Iraqi politics?  Can oil offset Iraq's sectarian cleavages to the point where competing political elites have an incentive to hold Iraq together rather than allow the county to fragment?

Two key considerations need to be taken into account.  First, Iraq not only has enormous proven reserves of oil and natural gas, but huge areas of the country which have still not been explored.  Indeed, many energy analysts think 70% of Iraq's oil reserves have yet to be discovered.  According to a study by the US Energy Information Agency, Iraq possesses the fifth largest proven reserves of oil and the twelfth largest natural gas reserves.  At the beginning  of 2013, Iraq had 141 billion bbls of proven oil reserves and 112 trillion cubic ft (Tcf) of natural gas.

Second, 90% of Iraq's GDP and 80% of its foreign currency reserves are derived from the sale of hydrocarbons in the world market.   Not only does control of oil and natural gas production translate into immense political power, but it is the Iraqi state's only real source of funds. Iraq's competing elites - in its three main ethnocofessional communities - are fully aware that it would constitute political suicide to "kill the goose that lays the Golden Egg."  In other words, in the elite's view, sectarian conflict cannot be allowed to destroy Iraq's only major source of wealth.

Iraq is unique among rentier states in that control over the country's hydrocarbon wealth is divided among two sets of elites - the current Shiite dominated government of Prime Minister Nuri al-Maliki in Baghdad and the Kurdish leadership under President Masoud Barzani in the semi-autonomous Kurdish Regional Government (KRG) in Arbil.

Following the overthrow of Saddam Husayn in 2003, Iraq's Sunni Arab population lamented the lack of hydrocarbon resources in the so-called Sunni Arab Triangle comprising al-Anbar, Ninawa and Salah-al-Din provinces.  However, the discovery of large amounts of natural gas in the Okaz (Ukaz) field in western Anbar Province along the border with Syria and Jordan means that, if Iraq's three Sunni Arab provinces were to form an autonomous region as allowed by the constitution, they too would have access to extensive hydrocarbon wealth.

Hydrocarbon wealth is intricately intertwined with sectarian politics.  It is well known that Iraq ranks 175 of 180 in Transparency International's list of the world's most corrupt countries.  Both in Baghdad and in the KRG, corruption and nepotism are a political way of life.  Ministries function less as institutions to provide social and economic services than as fonts of patronage which is distributed according to power and influence of political parties and the cliques which control them.

The caustic rhetoric and vitriol emanating from Baghdad and Arbil belie the shared interest that Arab and Kurdish elites have in assuring the continued uninterrupted production of oil (and increasingly natural gas, most of which until recently was lost through flaring).  Both the Arab political elite in Baghdad and its Kurdish counterpart in the KRG are highly adverse to armed conflict which threatens domestic production and has the potential to scare away foreign investors.

The increased attacks on oil pipelines this past winter and spring by radical forces associated with the Islamic State of Iraq and revanchist insurgent groups tied to the former Ba'th Party present a direct challenge not only to Nuri al-Maliki's government, but to the KRG as well.  If the area along the so-called Green Line that separates Iraq's Arab and Kurdish populations were to come under the control of  radical elements (namely a coalition of al-Qa'ida and neo-Ba'thist insurgents), then attacks could be launched on Kurdish communities outside the control of the KRG and on oil facilities around Kirkuk, which sits astride a large oil field and which is claimed by the KRG,

For the Maliki government, the spread of a radical insurgency in Sunni Arab areas threatens to seriously disrupt the production, refining and export of oil.  Equally important to Iraq, as it seeks to replace rusty pipelines and upgrade its production and refining facilities, is its need to attract foreign experts and technicians.  If Iraq degenerates into civil war and the security situation worsens, many oil companies and oil technology firms will refuse to work in Iraq.

Although no agreement has been reached on a Hydrocarbon Law which has been waiting to be approved since 2008, Baghdad and Arbil have been able to achieve a modus vivendi on the production of oil and the distribution of oil revenues.  However, as the KRG has sought to gain greater control over its oil sector since 2010, there has been increased push back from Baghdad.

From the Maliki government's perspective, the KRG should not have the right to sign contracts with foreign oil firms.  Baghdad's insistence on retaining control over contracts reflects three fears.  First, Baghdad does not want the KRG to deviate from the current arrangement whereby all oil revenues go to the central government and then are distributed to the KRG according to its percentage of the population (generously defined as 17%, but more likely closer to 13% of Iraq's population).

Second, the Maliki government fears that greater autonomy in the hydrocarbon sector might encourage the KRG to declare independence.  The possibility of Iraq's 3 Kurdish provinces declaring an independent state has become more real, in Maliki's view, as the KRG has developed closer political and economic ties with Turkey.  Third, Maliki does not want to be seen as the Prime Minister of only an Arab state as this will open him up to charges that he is weak and cannot defend Iraq's territorial integrity.

The KRG has benefited from more than $6 billion of Turkish investments.  In May 2012, it signed an agreement to build oil pipelines directly from the KRG to Turkey without central government approval.  In response to Baghdad's attacks, Arbil has pointed to the central government's failure to create a legal framework for foreign investments, thereby impeding the KRG's ability to develop its own hydrocarbon sector.

Although the KRG has drawn closer to Turkey in recent years, it does not want to become too dependent on the Turks.  An independent and land-locked Kurdistan would be completely at the mercy of Turkey.  It would also find itself cut off from valuable capital investments from the Arab Gulf states and Saudi Arabia to the south.  While much of the Kurdish elite seek an independent state, in their view it is better to be tied to a weak Arab state headquartered in Baghdad - one in which they still exert considerable influence - than dependent on an economic and military powerhouse in the form of Turkey

In protest of Maliki's refusal to negotiate the KRG's demands for changes in national oil policy and the escalating conflict with Iraq's Arab Sunnis, Kurdish Foreign Minister Hoshyar Zebari, the Kurdish Trade Minister, Khayrullah Hasan Babaker, and the entire Kurdish parliamentary delegation returned to the KRG in protest of the prime minister's policies.Meanwhile, the KRG sent its Pesh Merga forces to the contested city of Kirkuk where the Iraqi army was having difficulties controlling massive Sunni Arab protests,

Quickly, Maliki changed his political tune. The escalating rhetoric declined and Arbil sent a high level delegation to Baghdad in early May. After meeting with the Kurdish delegation, Maliki indicated that they would work to resolve their mutual differences. He also indicated in an interview with al-Hayat newspaper that he was making an effort to develop better relations with the two main Sunni Arab states, Saudi Arabia and Egypt (see Abdallah Nasir al-'Utaybi, "A Shi'i in the 'Office' is better than a Sunni in Turkey," al-Hayat, May 13, 2013).

At the same time, a variety of prominent politicians have worked to tamp down sectarian tensions by stressing national unity and the desire of all Iraqis to create a democratic state. Both Sunni Speaker of the Iraqi Chamber of Deputies (national parliament) Usama al-Nujayfi and Foreign Minister Zebari have played to Shi'i sentiments by evoking the assassination in August of 2003 of the highly respected Ayatollah Muhammad Baqir al-Hakim, the former leader of the Supreme Council for the Islamic Revolution in Iraq (SCIRI), now known as the Supreme Iraqi Islamic Council.

Nujayfi noted that 2013 is the 10th anniversary of his death while Zebari said that his killing was a "historical deviation" in Iraq which was  intended to "light the fires of inter-communal killing (al-fitna)."  Nujayfi called upon Iraq's political leaders to "throw their petty and small differences into the waste basket," while Zebari added that Iraqis need to "reassert our commitment to our national initiatives and our decision to establish our peaceful coexistence in a parliamentary and federal democracy."

In his turn, Ammar al-Hakim, the current leader of the Supreme Iraqi Islamic Council, responded by saying that, "while the responsibility for protecting the nation is not the army's duty alone," Iraq cannot live"by the sword alone."  Rather it is the "commitment to values and beliefs the will protect the nation from those who seek to divide it and from the purveyors of civil strife (tujjar al-fitna)." (al-Hayat, May 12, 2013)

Bill Keller is correct.  Iraq is not Syria. Nuri al-Maliki's recent efforts  to make amends with the Kurds and to assure Saudi Arabia and Egypt that he is not trying to marginalize Iraq's Sunni Arabs, as well the aforementioned comments of important politicians, point to the desire of Iraq's political elite not to let sectarian cleavages consume the country and lead to civil war.

Nuri al-Maliki is no Bashar al-Asad. He has neither the political clout nor military power to suppress those who oppose his rule.  While the Iraqi political elite has many venal and rapacious elements, it is a much different animal than its Syrian counterpart.  Further, unlike Syria, external powers are not playing a destabilizing role in Iraq. Neither Iran nor the United States - the two most influential outside forces - want to see Iraq devolve into civil war.

Maliki will most likely be forced to make amends with the Sunni Arab community.  His war of words with the Kurds will continue and his government will have to fend off challenges from members of his own Shi'i political elite, such as the Sadrists, the Supreme Iraqi Islamic Council and the Badr Organization.  Former Prime Minister Ibrahim al-Ja'fari, the head of a splinter faction of Maliki's Islamic Call Party (Hizb al-Da'wa al-Islamiya), waits in the wings, ready to pick up the pieces should his former colleague fail.

At the end of the day, Maliki has access to a powerful weapon not found in Bashar al-Asad's arsenal - large amounts of revenues derived from the sale of oil and natural gas.  To keep that weapon intact, Maliki cannot afford to let the current civil strife spin out of control.  Thus he will no doubt soon move to defuse many of the sectarian tensions that have been stirred up by his ill-advised and would-be authoritarian policies.

Never the statesman, Maliki will attempt to defuse but not try to find lasting solutions to the political, economic and security problems currently facing Iraq.  Politically, we can expect Iraq to continue to "muddle through" as intra-elite and inter-communal conflict persists, but at a less system challenging level.

Some analysts see the emergence of Sunni, Shi'i and Kurdish mini-states along the line of the Sunni, Alawite and Kurdish mini-states projected to be formed in Syria as its civil war has reached a stalemate.  However, those who see the breakup of Iraq along sectarian lines should take time out to put on another set of conceptual eyeglasses, those that view Iraq through the prism of hydrocarbon wealth.  For those who gamble, I would place my bet on Iraq maintaining its territorial unity.