Kurdistan referendum in spotlight

ERBIL, September 27, 2017 – Amid regional threats of economic sanctions and violence, fallout from Monday’s independence referendum in the Kurdistan Region of Iraq (KRI) continued to ripple through the oil markets Wednesday.

“We assure the international community that we are committed to a dialogue process with Baghdad,” KRI President Masoud Barzani said on Tuesday, shortly after he declared that the “yes” vote had won. “Threats will solve nothing.”

Iraq’s central government, however, ruled out negotiations on Monday, with Prime Minister Haider Al Abadi calling the poll “unconstitutional” and demanding that neighbouring countries cease energy imports from the KRI. Turkey and Iran, two neighbours with significant Kurdish minorities, joined Baghdad in condemning the referendum and held military drills along the border, threatening an invasion.

“If Barzani and the Kurdish regional government do not go back on this mistake as soon as possible, they will go down in history with the shame of having dragged the region into an ethnic and sectarian war,” Turkey’s president, Recep Tayyip Erdoğan, said.

Analysts cite the crisis as a major factor behind the recent rally of oil prices to close to USD 60 per barrel, a multi-month high.

“The saber-rattling from Erdoğan really spooked the market,” John Kilduff of energy hedge fund Again Capital told CNBC. “This is the first time we’ve seen oil threatened as a diplomatic weapon for a while.”

Despite continuing threats, however, Turkey has not yet shut down the pipeline that carries Kurdish oil to the Mediterranean port of Ceyhan. Many pundits believe that neither war nor serious economic sanctions are likely against the KRI, whose government has forged close economic links to its neighbours and attracted significant investments from major international oil and gas companies including Russia’s Rosneft.

“The most likely outcome is not going to be a permanent shutdown of the Kirkuk-Ceyhan pipeline because that would completely shut down the Kurdish economy and undermine the stability of the region, which is not a primary target of either Baghdad, Ankara or even Tehran,” Ayham Kamel of consultancy Eurasia Group added in an interview with CNBC.