* New Kurdistan-Turkey oil pipeline provokes Iraq
* Lasting deal seen unlikely, dispute intractable
* Oil, geopolitics draw Turkey and Iraqi Kurds closer
* Graphic link.reuters.com/gyt36v
By Isabel Coles, Ahmed Rasheed and Humeyra Pamuk
ARBIL/BAGHDAD/ANKARA, Jan 24 A headlong
collision across Middle East fault lines is drawing close as
Turkey, Iraq and ethnic Kurds who run their own region in
between wrangle over oil exports.
Time is running out as more oil flows through a new pipeline
from Iraqi Kurdistan for export from Turkey, in defiance of
Baghdad, which has threatened to punish both Ankara and Arbil
for "smuggling" oil out of Iraq.
Talks have borne little fruit and, with the Kurds seeking
buyers for the oil from their autonomous territory thanks to an
agreement with Turkey signed in November, Ankara will soon be
forced to take sides.
"Turkey must now choose either to turn its back on Baghdad
and go ahead with its deal with the Kurds, or suspend direct
exports from the region until an agreement is reached between
the central government and Arbil," said a senior Iraqi official
who asked not to be named.
"Unfortunately, facts on the ground show that Ankara
eventually will go ahead with their deals with the Kurds at the
expense of their relations with Baghdad."
Oil traders expect at least one symbolic cargo of the oil to
be exported by the end of the month, preferably with Baghdad's
consent, but without it otherwise.
"That will put additional pressure on Baghdad to negotiate
with a sense of urgency," said a Kurdistan-based industry source
on condition of anonymity. "We always thought that it (the
pipeline) would be the catalyst for the initiation of serious
discussion and resolution of the export problem."
Behind the scenes, and the hotter rhetoric, the private
voices in Baghdad and Arbil are, however more united - but in
pessimism that an enduring compromise can be found to a dispute
that has strained Iraq's federal unity.
If a deal is elusive, the Kurds retain some powerful
political cards to play in the formation of any Iraqi government
after elections at the end of April. Equally, Baghdad could cut
funding to the northern enclave.
Kurdish officials are positive Ankara will stand by them and
publicly say they are hopeful a bargain can be struck with
Baghdad, but in private admit their differences are almost
The latest round of talks ended inconclusively in Baghdad on
Sunday. Iraq's Deputy Prime Minister for Energy Hussein
al-Shahristani is due to visit the Kurdish capital Arbil for
further negotiations in the coming days, although no date has
been formally announced.
Turkey has sought to stay above the fray.
"We have repeatedly said, these are decisions that they will
make among themselves," Turkish Energy Minister Taner Yildiz
told reporters. "I believe our brothers will meet at a good
Ankara may want to see a formal agreement in place before
allowing continuous exports from the region, but industry
sources there are sceptical any deal would hold.
"Turkey has come to a point where it has to take extra
care," said one. "I don't see a lasting solution... but there
could well be a temporary arrangement so that the pressure in
the system can be relieved, at least in the interim."
BARGAINING IN BAGHDAD
Autonomous since 1991, Kurdistan has often chafed against
central authority, and even raised the prospect of secession
from Iraq, but is nonetheless reliant on Baghdad for a slice of
the OPEC producer's $100 billion-plus budget.
Baghdad has warned it will sever that lifeline if the Kurds
exports oil without its consent. The Iraqi cabinet this month
approved a draft budget for 2014 that would slash the region's
share of state revenues unless it exports 400,000 barrels of
crude per day via State Oil Marketing Organisation (SOMO).
That is well above Kurdistan's current export capacity of
around 255,000 bpd, industry sources say.
Officials in the region are confident the budget will not
pass in parliament because most Sunni lawmakers are boycotting
the assembly, and a Kurdish walkout would likely prevent a
Nonetheless, they are considering their options should it
come to that.
"If Baghdad cuts the budget as they threatened, then
Kurdistan has a lot of cards to play," said a senior official in
Arbil on condition of anonymity. "Not allowing the flow of oil
from Kirkuk to Ceyhan is one of them."
It is not clear how the Kurds would prevent pipeline oil
flowing from the Kirkuk oilfields to Turkey's Mediterranean port
of Ceyhan, but a stretch of it runs through their territory.
Another less provocative option would be to twist Iraqi
Prime Minister Nuri al-Maliki's arm before a parliamentary
election due on April 30, in which he will need Kurdish support
to win a third term or form a government.
"The threats being made today only demonstrate that oil
disputes are most likely going to be on the negotiating table
between Kurdish and Arab parties when forming the next
government," said Ramzy Mardini, nonresident fellow at the
TURKISH GAME PLAN
For Turkey, Kurdish oil will help diversify its energy
supplies away from Russia and Iran and reduce a ballooning $60
billion energy bill, but the motive for better ties goes beyond
"Turkey's interest in the KRG is driven as much by
geopolitics... as it is by Turkey's energy needs," said Soner
Cagaptay, director of the Turkish Research Program at The
Co-operating with the Kurdistan Regional Government (KRG)
gives Ankara additional sway over politics in Baghdad, and the
relatively stable region serves as a buffer to insulate Turkey's
southeastern corner against instability in the rest of Iraq.
Ankara is also counting on the KRG to help it make peace
with the Kurdistan Workers Party (PKK) rebel group, which has
fought a three-decade war against it, at a cost of more than
40,000 lives on both sides.
Some PKK guerillas have withdrawn from Turkey to their bases
in the mountains of Iraqi Kurdistan as part of a peace process
set in motion last year.
Ankara's new approach to the Kurds was stated plainly by the
Turkish foreign minister in a conversation with former U.S. army
chief of staff General Ray Odierno following a 2007 PKK attack.
Ahmet Davutoglu said his government had been under pressure
to retaliate against the KRG.
"We could have destroyed Arbil, but we didn't. Instead, we
increased our economic interdependence with the KRG," Davutoglu
said, according to a U.S. diplomatic cable dated 2010 and
released by Wikileaks.
Apart from providing the landlocked Kurds with an outlet to
global markets, Turkey is a crucial ally for Arbil in a hostile
region following the withdrawal of U.S. troops from Iraq.
"It's driven by a sense of mutual need on both sides," said
Cagaptay. "Turkey and the Kurds need each other and I think
that's going to persist in the long-term".
At Turkey's Ceyhan, three storage tanks, each with a
capacity of 2.5 million barrels, have been set aside for Kurdish
oil, and industry sources say around 300,000 barrels have flowed
into them so far.
The KRG has already issued a tender to sell 2 million
barrels by the end of January.
The Kurds insist on selling crude independently of SOMO,
which Baghdad says has exclusive rights to manage all sales of
SOMO officials have traveled to Turkey along with the head
of Iraq's state-run North Oil Company to meet the deputy energy
Iraqi Oil Minister Abdul Kareem Luaibi said last week
Baghdad was preparing legal action against Ankara and would
consider cancelling all contracts with Turkish firms if exports
went ahead, putting $12 billion worth of bilateral trade a year
Kurdistan used to feed crude into a Baghdad-controlled
pipeline to Ceyhan, but stopped a year ago due to a row over
Since then, the Kurds have been trucking smaller quantities
of oil to Turkey and collecting the revenues themselves, while
laying their own pipeline, which was completed late last year.
(Writing by Isabel Coles; Editing by William Hardy)