The Kurdistan Regional Government (KRG) in northern Iraq has announced a plan to construct an oil pipeline to Turkey with a volume of 1 million barrels per day (bpd), move hinting at tectonic shifts in the geo-economics and associated geopolitics of greater Southwest Asia. The oil is intended to be sold onto international markets.

The central Iraqi government in Baghdad asserts that the project is illegal, but Turkey’s Energy Minister Taner Yildiz is fully on board with the idea, having endorsed it at the conference in Irbil where it was announced by KRG Natural Resources Minister Ashti Hawrami. Last December, Hawrami estimated that the Kurdish region contained between 3 and 6 trillion cubic meters of natural gas and 45 billion barrels of oil.

The central Baghdad government has never been able to pass a new law, foreseen in the constitution, governing new oil and gas ventures. A draft law, never adopted, has no legal weight. The Iraqi constitution has specific provisions only concerning concessions existing at the time of its adoption.

As a result, specialized international law experts tend agree that the “Oil and Gas Law of the Kurdistan Region” holds authority in the matter of new energy concessions there, moreover since its provisions mostly correspond with other pertinent articles of the federal constitution.

Hawrami specifically told the conference, as quoted by Reuters: “Export[ed] crude from the Kurdish region’s fields will still be Iraqi oil.” He added that the KRG would take 17% of the revenues (as allowed by the Iraqi national budget) and pass the rest along to the federal center in Baghdad and the Iraq Central Bank.

According to Hawrami, the pipeline’s first stage would be completed within five months and carry crude oil from the Taq Taq field. The 1 million bpd capacity would come online by August next year when the second phase would connect to the Kirkuk-Ceyhan pipeline. Reports from the conference also discuss a second oil pipeline from Kirkuk to Ceyhan that would open in 2014.

Ceyhan is already the terminus for the 1 million bpd Baku-Tbilisi-Ceyhan (BTC) oil export pipeline from offshore deposits in the Azerbaijani sector of the Caspian Sea. Turkey has long sought to develop further the Ceyhan oil terminal so as to make the city a “pole of attraction” for industrial growth in Adana province.

The failure to hold a referendum on the status of Kurdish regions within four Iraqi governates (specifically to decide whether they become part of the Iraqi Kurdistan region and therefore subject to the just-mentioned “Oil and Gas Law”) provided for in Article 140 and now five years overdue has also played its role in leading the KRG to take such initiatives.

The new agreement hardly marks the first time that the KRG has unilaterally undertaken new cooperation in the energy sector with international partners. Last December, ExxonMobil signed an agreement with the KRG to explore for energy deposits in regions of Nineveh province that would be subject to such referenda.

The city of Kirkuk is probably the best known of such disputed areas under KRG control. One of the results of the new agreement will likely be increasing attempts by the Basra governate in southern Iraq to assert greater authority over deals in its own region.

The Turkish Foreign Ministry has been working in the past few weeks to define the new “Eurasian” direction of the country’s policy in specific terms. This agreement in principle with the KRG appears to be one of the first tangible results of the reorientation of Turkey’s foreign policy away from the discredited “zero problems” doctrine that blew up in Ankara’s face when Tehran refused to allow it to have zero problems, most notably but not only in Syria.

The Alawite minority to which the Assad clan belongs is part of the Shi’ite wing of Islam, while the Sunni Kurds are cooperating with the Sunni Turks and periodically threaten to reveal documents embarrassing to the Shi’ite Iraqi Prime Minister Nuri al-Maliki.

However, pure economics also drives the deal. Iraq is already Turkey’s number two trading partner, and most of that trade is with the territory under KRG control. Ankara is determined to become an energy hub, and its domestic economy also requires increasing amounts of gas, not all of which demand may be satisfied by the recent deal with Azerbaijan over the Caspian Sea offshore Shah Deniz Two field.

Turkey is an attractive market for firms developing not only oil but also gas resources in Iraqi Kurdistan, not least because the KRG has a zero-flaring policy in respect of the associated gas that is naturally liberated in the course of developing the given oil reservoirs. Energy demand and electricity demand in Turkey have grown at a 7% annual rate recently, and this may continue.

First published in Asia Times Online, 24 May 2012.