Will Kurdish oil be blocked?

Will Kurdish oil be blocked?

Turkey, Iran and Iraq will jointly decide on closing the flow of oil from northern Iraq, Turkish President Recep Tayyip Erdoğan said, as the three neighbors mull retaliatory moves after the Kurdistan Regional Government (KRG) voted for independence.

“In the case of northern Iraq, Iran, Iraq and Turkey will form a tripartite mechanism and will decide on shutting down the oil [from the KRG],” Erdoğan said.

The KRG currently exports its oil to international markets via a pipeline that passes through Turkey.

Erdoğan, who was speaking to reporters on his return flight from a one-day trip to Iran, also once again blasted the inclusion of the contested oil-rich city of Kirkuk in the referendum, saying the Kurds "have no legitimacy there", Hurriyet Daily reported.

Iran and Turkey have already threatened to join Baghdad in imposing economic sanctions on the KRG and have launched joint military exercises with Iraqi troops on their borders after the region’s independence referendum on Sept. 25.

A leading analyst of the National Energy Security Fund, a lecturer at the Financial University under the Government of the Russian Federation, Igor Yushkov, speaking with a correspondent of Vestnik Kavkaza, noted that, most likely, Turkey and Iran will not refuse from Kurdish oil, but will use this opportunity to strengthen their own negotiating positions.

"If Turkey takes such a step, it will be a big blow to the economy of Iraqi Kurds, because the only alternative to the Turkish route is oil exports through the territory of Iraq, which will obviously be blocked. In fact, a complete blockade of Kurdistan and the collapse of its entire economy is possible. But the question is whether Turkey will do it. Turkey has long-standing ties with Iraqi Kurdistan, the main economic benefits from Kurdish projects are received precisely by Ankara, and it would be useless for the Turkish authorities to break this relations," he stressed in the first place.

"Ankara's current claims to the Iraqi Kurdistan were caused not by the referendum on independence itself, but the lack of coordination of this action with the regional powers, primarily with Turkey. It indicates that the current diplomatic conflict between Kurdistan and Turkey can be solved, and it doesn't mean that Ankara will block oil. On the contrary, with such statements, Turkey wants to improve its initial negotiating positions, and the more Ankara will put pressure on Erbil, the better its negotiating positions will be," Igor Yushkov believes.

If such a blockade is actually introduced, this will lead to a one-stage increase in oil prices. "The news of the blockade of Kurdistan will be perceived by traders as a signal to buy futures, which will increase their prices. I do not exclude that the price of a barrel will rise by $3-4 within a few days. But it will not have a major effect on the real oil market," the leading analyst of the National Energy Security Fund, a lecturer at the Financial University under the Government of the Russian Federation said.

 The head of the 'Caspian Barrel' Center for Oil Research, Ilham Shaban, on the contrary, said that a blockade of Kurdish oil is possible. "Since 1974, Kirkuk–Ceyhan oil pipeline has remained the best option for supplying Iraqi oil to the west. All this time it has brought good money to the Iraqi government and since 2009 to the Iraqi Kurdistan. After the referendum, the Turkish leader held a number of consultations with Baghdad and Tehran that neither Iran, nor Turkey, nor neighboring countries are harmed in terms of national interests as a result of the possible emergence of a new state. Before the referendum Erdogan openly said that the valve of Iraqi oil is in his hands and he will do everything possible for Erbil to remain without oil revenues. And here it is quite possible that oil money will flow not to Erbil, but to Baghdad," he suggested.

Ilham Shaban also noted that the blockade of Kurdish oil will have only a psychological impact on the markets. "The maximum daily export volume from Northern Iraq is 500-600 thousand barrels per day, which is a small amount. For those countries, whose economy depends on oil, I would call it good news, because then the price of oil will increase," the head of the 'Caspian Barrel' Center for Oil Research concluded.