Pipeline Politics: How U.S. Pressure, Kurdistan’s Oil Could Reshape Iraq’s Future

ERBIL (Kurdistan24) – The ongoing dispute over the KRG’s oil exports is deeply rooted in Iraq’s governance structure. Dr. Luay al-Khatteeb, a senior researcher at Columbia University and former Iraq's Ministry of Electricity, underscored the contradictions in Iraq’s political and economic framework in an interview with Kurdistan24’s Zhino Mohammed in Basi Roj segment.

The resumption of the Kurdistan Regional Government’s (KRG) oil exports has become a pressing issue, with intensified diplomatic and economic discussions aimed at resolving longstanding disputes.

Efforts to restart exports have accelerated following a phone conversation between U.S. Secretary of State Marco Rubio and Iraqi Prime Minister Mohammed Shia al-Sudani, during which both leaders emphasized the urgency of reopening the Iraq-Turkey pipeline.

The Association for the Petroleum Industry of Kurdistan (APIKUR) has welcomed these developments, highlighting the significance of restoring stability to Iraq’s energy sector.

Iraq’s Federal System and the Oil Dispute

"After the 2005 ratification of the Iraqi constitution, a federal system was established, theoretically fostering a free-market economy," Khateeb explained. "However, in practice, Iraq has failed to fully implement this system. Instead, Baghdad continues to operate under a centralized governance model, while Erbil views federalism through a confederal lens. This misalignment has hindered constructive dialogue between the two sides."

Al-Khatteeb argued that a lack of binding federal laws has stalled progress. "The absence of a Federal Council for Oil and Gas, as well as the failure to pass a Federal Oil and Gas Law, has left Iraq without a legal foundation to regulate the energy sector. Instead, political agreements—often short-lived and unstable—have dictated oil policy. These agreements emerge during budget negotiations or governmental transitions but frequently collapse due to a lack of legal enforcement."

He suggests that the Kurdistan Region should insist on a legal framework rather than relying on political compromises. "If I were advising the KRG leadership, I would recommend establishing a fixed-mandate expert committee to develop federal laws within six months. Without this, Iraq’s economic structure will remain volatile."

Economic Consequences of the Export Suspension

Since the suspension of KRG oil exports in March 2023, Iraq has suffered an estimated $20 billion in lost revenue. The shutdown resulted from an international arbitration ruling in favor of Baghdad against Turkey, forcing a halt to oil shipments via the Iraq-Turkey pipeline.

Al-Khatteeb stresses that these financial losses impact all Iraqis, not just those in the Kurdistan Region. "Revenue from oil and gas should be equitably distributed through federal institutions. However, Iraq’s failure to establish such institutions has led to economic inefficiencies that harm the entire country."

U.S. Pressure and the Future of Energy Security

Washington’s increased pressure to resume KRG oil exports is part of a broader strategy to reduce Iraq’s reliance on Iranian energy imports. If the U.S. enforces sanctions preventing Iraq from purchasing Iranian gas, Baghdad could face severe energy shortages.

"Iraq must demonstrate a commitment to domestic energy production," al-Khatteeb warns. "The Kurdistan Region has significant natural gas reserves in fields such as Chamchamal and Khor Mor. Investment in these resources is essential for energy security."

However, transitioning away from Iranian gas will require significant infrastructure development. "LNG (Liquefied Natural Gas) imports could be a short-term solution, but they are 20-30% more expensive than piped gas and would take at least two years to implement," al-Khatteeb explains.

Reforming Iraq’s Energy Sector

A key issue in Iraq’s energy crisis is pricing policy. "The government purchases electricity at over 12 cents per kilowatt-hour but sells it to the public for just 1 cent," al-Khatteeb highlights. "This imbalance is unsustainable and must be restructured."

He also points out that Iraq’s fragmented management of the energy sector—divided among three ministries (Oil, Electricity, and Industry)—hinders efficiency. "A unified Ministry of Energy, like those in Saudi Arabia and the UAE, would provide more effective oversight."

The Kurdistan Region’s Economic Model as a Template

Al-Khatteeb believes that the KRG has a more advanced understanding of free-market economics compared to Baghdad. "If Kurdistan’s policies were replicated across Iraq, there would be greater pressure on the federal government to modernize its economic approach. Kurdistan should leverage this expertise to influence broader federal reforms."

The resumption of KRG oil exports is not just an economic necessity but a critical test of Iraq’s ability to function as a true federal state. As U.S. pressure mounts and financial losses accumulate, both Baghdad and Erbil must prioritize constitutional solutions over temporary political agreements. Ensuring a stable, legally grounded framework for oil exports will be key to Iraq’s long-term economic and energy security.

Full transcript of the interview:

Good evening. I am Zhino Mohammed from Kurdistan24, presenting the “Basi Roj” segment. As you may be aware, the resumption of Kurdistan Region’s oil exports is a critical and pressing issue. Steps are being taken to resume exports as soon as possible, a process that has accelerated following a phone conversation between U.S. Secretary of State Marco Rubio and Iraqi Prime Minister Mohammed Shia al-Sudani. During their discussion, both sides emphasized the urgency of expediting the process. Concurrently, the Association for the Petroleum Industry of Kurdistan (APIKUR) welcomed this development.

We will begin with a general discussion on Iraq's oil and energy sector before linking it to the resumption of the Kurdistan Regional Government’s (KRG) oil exports. To explore this topic, we have invited Dr. Luay Khateeb, Senior Researcher at Columbia University.

Q: As discussions continue regarding the resumption of KRG oil exports, what are your expectations? Can we say that resumption is imminent?

A: The oil and energy sector in Iraq is both vital and complex, as it is deeply intertwined with the country’s political and economic framework. After the Iraqi constitution was ratified in 2005, the government adopted a federal system. In a federal system, the economy supports a free market, where economic activities should operate without state interference, allowing the private sector to expand. Unfortunately, Iraq has not implemented this system as intended. Either it has not been fully realized, or it has not functioned as required.

Moreover, the federal system itself has not been properly enacted. This failure stems from the absence of necessary federal laws, regulations, and institutional frameworks that should uphold the system. As a result, the envisioned federal structure has not materialized. Kurdistan Region’s President Nechirvan Barzani recently stated: “The Iraqi constitution defines a federal state, yet its implementation has been that of a centralized state.” This is an accurate observation. Baghdad perceives the federal system through a centralized governance lens, while Erbil approaches it from a confederal perspective. Consequently, neither Erbil nor Baghdad engage in discussions within a truly federal framework. What Iraq needs is the genuine application of a federal system—not a centralized or confederal model.

Q: Given Iraq’s centralist approach, what can we expect regarding oil and energy negotiations with the Kurdistan Region?

A: Without legally binding agreements that establish a clear federal system, moving from a centralized government to a fully functional federal system remains impossible. These agreements cannot be ignored. Take, for example, the Federal Council—a body that requires legislation, yet no law has been passed for its formation in the Iraqi parliament. Similarly, Iraq lacks a Federal Oil and Gas Law, which should be preceded by the establishment of a Federal Council for Oil and Gas.

Without these legal frameworks and institutions, political agreements alone cannot ensure stability. The main issue with political agreements is that they are short-lived and stillborn. They emerge under two main circumstances: annually, when negotiations arise over Iraq’s budget, and every four years when a new government is formed post-elections. Unfortunately, once these agreements are signed, at least one of the parties involved typically reneges, undermining the entire arrangement. A state cannot function based on temporary political agreements—it must be governed by laws and constitutional frameworks.

Q: Are you saying that Iraq has not adhered to its constitution?

A: Precisely. One of Iraq’s most pressing issues is the failure to implement its federal system as outlined in the constitution. Article 130 of the constitution explicitly states that all existing laws, including those from the Baathist era, remain valid until they are replaced by new federal legislation. However, there is no defined timeframe for these amendments. The lack of a clear deadline to transition out of this ‘interim’ legal state has exacerbated the situation.

If I were in the executive leadership of the Kurdistan Region, I would avoid relying on political agreements and instead demand the formation of an expert committee with a fixed mandate—no longer than six months—to implement federal laws and institutions. Nothing has been effectively applied for the past 20 years, and this has had a detrimental impact on revenue-sharing from federal resources, not just oil and gas. The broader issue at hand is the equitable distribution of federal mineral revenues, which requires federal institutions to regulate this process.

Q: You emphasize the importance of law and constitutional frameworks for a federal state. However, given the centralist mentality in Iraq, political agreements seem to hold significant sway. Is that not the case?

A: The problem exists on both sides. As a researcher, I have observed this issue long before assuming ministerial office, having participated in discussions dating back to 2008. The discourse from both Baghdad and Erbil has often been extreme, with each side entrenched in its own perspective. Instead of debating whether the system should be centralized or confederal, both parties need to align their discussions with the principles of a federal system. When they adjust their rhetoric accordingly, they can bring constitutional experts, economists, and lawmakers to the table to resolve outstanding issues.

Q: Apart from political agreements, companies are also demanding business agreements, which have yet to be finalized. Should political agreements, business contracts, or constitutional laws take precedence in the resumption of KRG oil exports?

A: The authorities must focus on common interests, with economic benefits being the foremost priority. For instance, the suspension of KRG oil exports has cost Iraq approximately $20 billion annually—funds that should have been added to the federal reserves for the benefit of all Iraqis, including those in the Kurdistan Region. These economic losses stem from political disputes, international court rulings between Turkey and Iraq, and the agreements between Erbil and Ankara, among other factors.

This is why I emphasize constitutional solutions. Unlike political agreements, which are often temporary and prone to failure, constitutional solutions provide lasting stability. Political agreements may last for weeks or months before disputes resurface. If Iraq aims to transition from an oil-dependent economy to a more diversified one, it requires a pragmatic and long-term approach. Furthermore, economic development in Iraq benefits Kurdistan Region as well. Large-scale projects in other parts of Iraq—such as airports and ports—have direct and indirect advantages for Kurdistan. Similarly, comprehensive tax and economic reforms are necessary considerations.

Q: The United States is applying increasing pressure to resume KRG oil exports. This time, the pressure seems more intense, partly due to the speculation that Iraq will no longer receive waivers to purchase Iranian gas. Do you believe this is the primary reason, or are there other factors?

A: Energy security is a crucial topic, and the Kurdistan Region can play a central role in ensuring it. This role extends beyond logistical and technical contributions—Kurdistan’s natural reserves and investments are vital assets. Ensuring investment stability in key areas like Chamchamal and Khor Mor, where gas fields are located, is essential for expanding and safeguarding energy projects.

Iraq must demonstrate to the international community, particularly the U.S., that it is taking decisive steps to enhance domestic energy production and investment. Economic reform is another key aspect, particularly the restructuring of energy pricing. The Kurdistan Region has a more developed understanding of federal economic principles and could help Baghdad implement effective mechanisms for reform.

Q: If U.S. pressure is aimed at reducing Iraq’s reliance on Iranian gas imports, Iraq could face an energy crisis, especially in the electricity sector. How can Iraq bridge this energy gap?

A: The potential U.S. sanctions on Iranian gas imports could indeed create a severe energy crisis in Iraq. Iraq has limited alternatives—transitioning to LNG (Liquefied Natural Gas), for instance, would be 20-30% more expensive and require at least two years to develop the necessary infrastructure. Agreements with suppliers like Qatar or Australia would also need to be negotiated in advance, as LNG production is based on long-term contracts.

More fundamentally, Iraq’s electricity pricing system is unsustainable. The government buys electricity at a cost of over 12 cents per kilowatt-hour but sells it to the public for just 1 cent. This imbalance must be addressed to create a viable energy market.

Q: Why has Iraq failed to build a reliable energy infrastructure over the past 20 years?

A: The main obstacle has been the instability of governance and fragmented management of the energy sector. Iraq's energy portfolio is divided among three ministries—Oil, Electricity, and Industry—which complicates coordination. A unified Ministry of Energy, as seen in countries like Saudi Arabia and the UAE, is crucial for effective management.

Q: Do you think the Kurdistan Region has pursued a sound energy policy?

A: Yes, the Kurdistan Region has a more advanced understanding of free-market economics and federalism than the rest of Iraq. It should leverage this knowledge to influence broader federal policy and encourage other provinces to adopt similar models. If Kurdistan’s success story is replicated elsewhere, there will be greater pressure on the federal government to adopt a more effective economic system.