Three ways that oil matters for the crisis in Iraq

For months now, Sunni militants from the Islamic State (better known as ISIS) have been seizing control of large swathes of Iraq.

ISIS is now threatening a major oil-producing region of Iraq

But it wasn’t until they encroached into semi-autonomous Kurdish territory and near the Kurdish capital of Erbil — an oil boomtown full of Western companies like Chevron and ExxonMobil — that the Obama administration decided to authorize airstrikes against ISIS.

That rather felicitous timing has already led a few commentators to suggest that the current US intervention is all about oil. That’s probably overstating things — the US intervention seems to have a variety of goals here, like protecting the Kurds more generally and preventing ISIS from massacring Iraq’s Yazidis. But it’d also be wrong to pretend that oil is totally irrelevant to the larger crisis in Iraq.

Iraq is currently the world’s seventh-largest oil producer, churning out some 3.3 million barrels per day in April. And Kurdistan is responsible for about 10 percent of that production — so ISIS is threatening a key producer. Meanwhile, disputes over how to divvy up Kurdistan’s oil revenue are a significant factor in Iraq’s never-ending political impasses. And the Obama administration has become entangled in a fight over whether Kurdistan should be allowed to sell its oil directly onto the world markets.

So here’s a rundown of three ways that oil matters for the ongoing crisis in Iraq:

1) Kurdistan is a major oil prize — and ISIS threatens that

(Joss Fong/Vox)

The Kurdish region of Iraq — home to 5 million Kurds — has been semi-autonomous since the 1991 Gulf War, with its own government and military (the peshmerga). But it didn’t become a major oil-producing region until after the 2003 US-led invasion of Iraq.

The region has attracted foreign oil companies like Chevron, Genel, and ExxonMobil

The region has two large oil fields in particular — Taq Taq and Tawke — that were largely neglected until 2004. (There’s also the supergiant oil field in Kirkuk, although that city is subject to dispute between Kurds and other ethnic groups in Iraq.) In recent years, however, foreign investors have swooped into Kurdistan, attracted by the region’s vast reserves and its relative stability.

Those investments were just starting to pay off. By June of this year, Iraqi Kurdistan was producing 360,000 barrels per day — about 10 percent of Iraq’s production (and about 0.5 percent of the world’s supply). And much more was expected. In a 2009 State Department cable leaked by Wikileaks, one foreign firm said Kurdistan “has the potential to be a world-class hydrocarbon region.”

Yet ISIS posed a (partial) threat to that boom when they showed up on the outskirts of Erbil, a city of 1.5 million that is hosting many of the oil and gas firms in the Kurdish region. On August 8, Reuters reported that some 5,000 barrels per day had gone offline in Kurdistan as a result of the fighting. Various oil firms, including Chevron, said they would withdraw some non-essential personnel from the region.

So far, the disruptions have been relatively minor, particularly since the US has launched airstrikes against ISIS that allowed the Kurdish military to retake a number of towns. The Kurdish regional government now insists that “oil production in the region remains unaffected.”

ISIS, for its part, clearly has an interest in seizing oil fields. The group reportedly controls seven oil fields and two refineries in northern Iraq, as well as a portion of a pipeline running from Kirkuk to the port city of Ceyhan in Turkey. Reports have suggested that ISIS is now selling some 10,000 barrels of oil per day to fund its activities.

It’s also worth noting that the vast majority of Iraq’s crude production has so far been unaffected. The map below shows Iraq’s oil infrastructure. If you compare with the map above, you’ll notice that ISIS isn’t close to any of the massive oil fields in the southern regions of Iraq, which produce 75 percent of the country’s crude. And it’s not close to the big Kurdish oil fields of Tawke or Taq Taq:

Iraq’s oil infrastructure

Energy-pedia

Still, many oil watchers had been counting on Iraq to boost production in the years ahead to help supply the world’s ever-growing demand. The ongoing violence makes those prospects considerably more uncertain.

2) The US won’t let Kurdistan sell its oil directly — a source of contention

An employee works at the Tawke oil field near the town of Zacho on May 31, 2009 in Dohuk province about 250 miles north of Baghdad, Iraq. (Muhannad Fala’ah/Getty Images)

In theory, all oil sales in Iraq are supposed to be handled by the central government in Baghdad, which then splits revenues among the various regions according to an existing agreement.

Kurdish officials say the Iraqi government isn’t sharing oil revenue as promised

Recently, however, Iraqi Kurdistan has been pushing to sell more of its own oil directly to other countries, bypassing the central government entirely. Why is that? Kurdish officials claim that the central government hasn’t been sending Kurdistan its promised 17 percent share of oil revenue.

By some estimates, roughly one-third of Kurdistan’s oil is now sold directly by the Kurds — typically at a steep discount. Many of those sales are facilitated by neighboring Turkey. (A recent report from the Congressional Research Service argued that Turkey is doing so to maintain good relations with Iraqi Kurdistan, partly out of a desire to mitigate the long-running conflict with its own Kurdish community.)

The United States, for its part, is officially opposed to Kurdistan’s direct sales of oil abroad. The way they see it, these moves undermine the unity of the Iraqi government, are steps toward de facto Kurdish independence, and threaten to tear the country further apart. “Iraq’s energy resources belong to all of the Iraqi people,” tweeted Brett McGurk, the US deputy assistant secretary of state for Near Eastern Affairs on July 30.

The stand-off is becoming increasingly intricate. There’s currently an oil tanker filled with about 1 million barrels of Kurdish oil parked about 50 miles off Houston that can’t unload its crude. The Washington Post reported that State Department officials have been quietly warning any potential buyers of the Kurdish oil that they could face “serious legal risks.”

Meanwhile, there’s growing pressure on the Obama administration to allow direct sales — particularly now that the Kurds are under siege from ISIS and the central government is refusing to send oil funds. In Congress, Rep. Adam Schiff (D-CA) called on the administration to change its stance: “if the Iraqi government does not resume the financial support owed to the Kurds, we should end our resistance to the direct sale of Kurdish oil.”

3) Oil is also a major factor in the simmering debate over who controls Kirkuk

Oil tankers transport petrol sold by IS (Islamic State) to Kurdish business men on July 12, 2014, in Iraq’s disputed northern city of Kirkuk. (MARWAN IBRAHIM/AFP/Getty Images)

To make things even more complicated, there’s also a long-standing debate within Iraq over who controls Kirkuk, a city of some 400,000 people that sits on the border between the Kurdish region and the rest of Iraq. Kirkuk also sits next to a “supergiant” oil field containing an estimated 10 billion barrels of crude.

There’s a longstanding dispute over who has claim to Kirkuk

The debates over Kirkuk itself have been going on for more than a century. The city has long been inhabited by Kurds, Turkmen, Assyrians, and Arabs, each with a historical claim on the region. (The Kurds argue that Kirkuk has been their rightful capital since the 18th century.)

But the discovery of oil near Kirkuk in the 1920s raised the stakes considerably. Back in the 1970s, the Kurds declared formal claims on Kirkuk’s massive oil fields. The Iraqi government saw that as an act of war and responded with a policy of “Arabization” — as Human Rights Watch detailed, the government expelled hundreds of thousands of Kurds and Assyrians from the city and resettled Arab families there.

Since the US invasion of Iraq in 2003, the reverse has happened. Thousands of internally displaced Kurds have returned to Kirkuk, raising new questions over who should control the city. A referendum on whether Kirkuk should be part of Kurdistan has been periodically raised and delayed since 2007. Suffice to say, Iraq’s central government isn’t ready to hand Kirkuk over.

The dispute took another sharp step forward this summer. As ISIS was expanding control over Iraq, Kurdish peshmerga forces took control of Kirkuk in mid-June, claiming that they needed to fill a “security vacuum.” And, in July, the Kurds began pumping oil from Kirkuk’s oil fields — also in defiance of Iraq’s central government — giving the Kurds de facto control over not just the oil but the city itself. It’s still unclear how this will all play out, but it’s another potentially violent source of contention fueled by oil.

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