With Kurdistan Gas Deal, Moscow Bets on Its Strength in the Region

Rosneft, Russia, Kurdistan
Russian President Vladimir Putin (right) visits Rosneft’s Tuapse Oil Refineryfor the opening ceremony of a deep-water terminal. (Image: TASS/Kremlin)

On Monday, the Kurdistan Regional Government in Iraq announced a deal with Russian oil giant Rosneft for a pipeline that will supply natural gas to the Turkish and European markets.

The pipeline capacity is set to be up to 30 billion cubic meters per gas annually, equivalent to 6 percent of Europe’s current gas demand. It will be operational for foreign export beginning in 2020, according to Rosneft and the KRG.

Rosneft will fund and build the pipeline on a BOOT basis (build-own-operate-transfer) and long-term tariff payments, the KRG Ministry of Natural Resources said in a press release. The agreement expands on an existing investment deal between the KRG and Rosneft and is expected to be finalized by the end of the year.

The announcement came one week before the KRG is set to hold a referendum for independence from Iraq over the objections of its neighbors and nearly all western nations.

Russia has suggested it would support Kurdistan’s eventual independence, and the KRG-Rosneft deal may be Moscow’s way of shoring up its position in the region for the period after the Syrian war ends.

Muhammad Sahimi, N.I.O.C. Chair in Petroleum Engineering and Professor of Chemical Engineering and Materials Science at the University of Southern California, noted that that the KRG has been under tremendous financial pressure due to deep corruption and low oil prices.

“Billions of dollars in oil revenue, when the oil price was high, were wasted,” Dr. Sahimi told The Globe Post.

He said KRG President Masoud Barzani could pivot first to Israel, not the U.S. or Russia, if Kurdistan does become independent. Israel is the only nation that has officially endorsed the independence referendum.

Saudi Arabia also considers Kurdistan to be an important counterweight to Iran and the Shiites in control in Baghdad, Mr. Sahimi noted.

The Saudi government has urged Mr. Barzani to call off the referendum, saying in a statement that it “looks forward to the wisdom of President Masoud Barzani in not holding the referendum” to “spare Iraq and the region more risks.” The Kingdom’s Gulf Affairs Minister, Thamer al-Sabhan, has offered to mediate between Erbil and Baghdad.

Even if Mr. Barzani does agree to postpone the referendum, the deal with Russia could boost both Erbil and Moscow’s positions. Monday’s announcement also includes plans to increase the capacity of an existing oil pipeline from 700,00 bpd to 1 million bpd by the end of the year.

Mark Katz, Professor of Government and Politics at the Schar School of Policy and Government at George Mason University, told The Globe Post that Russia’s cooperation with the Kurds conflicts not only with U.S. interests, but those of Moscow’s partners Iran and Turkey.

“Perhaps Moscow calculates that while Tehran and Ankara do not like Russia cooperating with the Kurds, they are both too dependent on Russia to challenge Moscow on this issue,” he said.

Dr. Katz cautioned that Moscow’s influence in the region could suffer if Russia miscalculates the extent to which Iran and Turkey depend on it. Both Tehran and Ankara have warned Mr. Barzani not to proceed with the referendum.

Writing in Iraq Oil Report this week, Ben Lando and Ben Van Heuvelen said Russia is giving the KRG a “badly needed geopolitical boost” ahead of the referendum while betting on its own position.

“Successful implementation of the project under discussion will enable Rosneft to play a leading role in the building and expanding Kurdistan Region’s gas transport infrastructure and create synergy with existing projects for development of the oil and gas fields of the 5 blocks awarded to the Company in the region,” Mr. Lando and Mr. Van Heuvelen wrote.