The Turkey‐KRG Energy Partnership: Assessing Its Implications

© 2014, The Authors Middle East Policy © 2014, Middle East Policy Council Ten years after the U.S. invasion and two years after the complete withdrawal of American forces from its soil, Iraq faces a number of challenges to its long-term stability and development. These range from corruption to poor public services, from rising terrorist violence to ethnosectarian tensions in the context of a complex powersharing system. An important, but often overlooked, aspect of Iraq’s political scene concerns the dispute between the federal government and the Kurdish Regional Government (KRG) over the management of the country’s and the Kurdish region’s natural resources and over appropriate revenue-sharing mechanisms. The parties have been stuck in a costly political stalemate for the past few years, as the absence of a federal hydrocarbon law has discouraged international investment in Iraq’s natural resources, and oil extracted from KRG-controlled fields has had only intermittent access to international markets. Oil and gas pipelines currently under construction connecting Iraq’s Kurdistan region and Turkey would provide an outlet to international markets for KRGcontrolled resources beyond the existing Baghdad-controlled export infrastructure, thus holding the promise of unlocking the Kurdish region’s hydrocarbon wealth. However, U.S. policy makers have expressed concerns that the Turkey-KRG energy partnership could actually destabilize Iraq, starting a chain reaction that could lead to the violent breakdown of the country. We take part in this policy debate by analyzing the ongoing dispute between Baghdad and Erbil through the lenses of bargaining theory. This allows us both to make sense of the costly negotiating stalemate between the federal government and the KRG and to assess the likely geopolitical impact of the new pipelines. Our analysis relies on information we have collected through interviews with KRG policy makers, Turkish officials, thirdcountry diplomats and analysts as well as from newspaper articles and analytical pieces on Iraq and Turkey. We argue that the negotiating deadlock between Baghdad and Erbil is to a large extent due to the existence of serious commitment problems on both sides. The KRG is concerned that the federal government may renege in the future on its