In an unprecedented attack on March 13, Iran's Islamic Revolutionary Guards Corps (IRGC) lobbed 12 missiles at a private villa belonging to oil mogul Baz Karim Barzanji in Erbil, the capital of Iraq's Kurdish autonomous region.
The attack was puzzling for a few reasons. The target was located in the city, not in Iraq's military camps hosting American forces; and the missiles were launched from Iranian, not Iraqi, territory. Instead of some unknown Shia militia, this time Iran's pride and joy, the IRGC, assumed responsibility.
More, the villa was described as "the Zionists' strategic center of plotting and evil" in Iraqi Kurdistan. Tehran offered the rationale that the assault had come in response to "recent crimes" of the "Zionist entity," namely Israel. This was particularly baffling; if Iran wanted to punish Israel, why bomb the Kurds?
Iran's message was then repeated: with three rockets on April 6 and six rockets on May 1 striking Erbil, this time coming from within Iraq. They caused serious damage to the largest oil refinery in Kurdistan, the 136,000 barrel-per-day refinery at Kawigosk, run by Barzanji's company Kar Group.
In fact, the March 13 attack had three motives. Officially, and explicitly, Tehran was aiming at alleged anti-Iranian intelligence and military collaboration between Israel and the Kurds. Implicitly, it sought to terrorize the Kurdish Democratic Party (KDP) into joining a pro-Iranian coalition in the Iraqi parliament.
And Iran likely had a third goal: sabotaging a project designed to provide Baghdad and Ankara with Kurdish natural gas.
While the existence of a so-called Mossad "center" in Erbil is in doubt, and may have simply been invoked as an Iranian excuse to pummel the Kurdish capital, there indeed exists some Israeli-Kurdish cooperation on oil. The linchpin of this activity is believed to be the man whose private villa was the only target successfully hit by the 12 Iranian missiles – Baz Karim Barzanji, one of the richest businessmen in Kurdistan. By describing the private home of the biggest Kurdish oil magnate – who is also closely associated with the KDP – as a nest of Israeli machinations, Tehran created a linkage between Israel and the Kurdish energy industry.
Although the Kurdish Regional Government (KRG) denies having any ties to Israel, rumors abound that Mr. Barzanji is connected to Kurdish-Turkish gas initiatives, and that he has hosted American and Israeli businessmen in his villa. If the Iranians were looking for a supposed "Israeli" target to sabotage the Kurdish gas project, these rumors, whether true or false, were heaven-sent.
While Mr. Barzanji's connection with the gas initiative is not clear, his connection to the Kurdish oil business is well known. In 2003, Mr. Barzanji established an oil company that developed the Kurdish Khurmala oil field. Today, he owns between a third and 40 percent of the active oil pipeline from Kurdistan to Turkey, with the rest owned by Rosneft. His revenues from the pipeline are close to $1 million per day. He was also involved in a few oil shipments from Kurdistan through Turkey to Israel. While the Iranians never explicitly mentioned an Israeli connection to the Kurdish oil or gas industry, the choice of Mr. Barzanji's villa as a target speaks for itself. Through him, Iran aims to taint the entire Kurdish energy industry as a nefarious Israeli plot.
Iraq has been importing Iranian gas under two supply agreements signed in 2013 and 2015. Strangely, neither agreement includes a penalty clause for supply arrears. Either someone in Baghdad was negligent or, perhaps, was at the receiving end of Iranian largesse.
The gas exports to Iraq increased substantially after the trade contracts were fully implemented in mid-2017. Today, Iran is wary that realizing potential gas exports from the KRG to Baghdad will be detrimental to its economy. Spoiling that prospect is a priority, but Tehran cannot simply call a spade a spade. After all, explicitly warning a sovereign country against developing its own natural resources is an international taboo.
On February 15, 2022, after years of postponement, the Iraqi Federal Supreme Court ruled that the 2007 Kurdish oil law is unconstitutional, making all KRG oil development, exports, and significant contracts with international oil companies illegal. The KRG claims that the court ruling goes contrary to the constitution's principle of oil federalism – a good case, but it has no higher court to appeal to. In practice, an oil and gas agreement between the KRG and Baghdad is made more difficult, because the court's new ruling ties the hands even of a conciliatory Iraqi government.
Facts & figures
It is not clear who asked the Supreme Court to give the ruling; there is no apparent evidence of Iranian involvement, and yet Tehran is the only party that will benefit from an energy war between Erbil and Baghdad. Iran now provides 30 to 35 percent of Iraq's gas needs, almost all for electricity production. Any Kurdish gas flowing to Baghdad will cut into Iran's huge profits.
Iran is also a massive natural gas exporter to Turkey, and the KRG is set to compete with Tehran there, too. In 2020, Iraq and Turkey accounted for 64 percent and 33 percent, respectively, of Iran's natural gas exports. In other words, practically all Iranian gas exports are going to Iraq and Turkey. From Tehran's point of view, the Kurds are not at all welcome there.
The Iraqi Supreme Court ruling took place at a critical moment: four months after the elections that made Muqtada al-Sadr kingmaker, and while he was trying to establish a majority coalition that would exclude Iran's champion, Nouri al-Maliki. The KDP, which supports Mr. al-Sadr in parliament, is also most deeply involved in the successful Kurdish oil and gas industry that competes with Iran's. By declaring this industry illegal, the court provided Tehran with a crucial service.
By the end of 2021, the KRG Ministry of Natural Resources estimated the Kurdish region's reserves at 45 billion barrels of oil and at 25 trillion cubic feet (Tcf) of proven gas reserves, around 25 percent of Iraq's total. It also has up to 198 Tcf of unproven gas. However, the manner in which the Kurdish and federal governments have treated their huge gas fortune could not be more different. Baghdad is flaring most of its natural gas, which is a byproduct of oil extraction (described as "wet" gas) and is tapping very little of its "dry" gas fields. This is why it depends on Iran for some 30 to 35 percent of the gas it needs for electric power.
Since 2018, Iran stopped the flow of gas to Iraq several times, for a few weeks each time, due to payments arrears and severe production difficulties in Iran. Production problems also led Turkey to suffer from long periods of unplanned reduction of Iranian gas supplies. Whenever Iran stopped its gas supply, millions of Iraqis were left without electricity – meaning no light, no safe drinking water, and no air conditioning in the sweltering Iraqi summers. This led to mass anti-Iranian demonstrations.
By comparison, the Kurds have made excellent use of their natural gas. Beginning in 2007, two international companies, Crescent Petroleum and Dana Gas, started developing two of the largest gas fields in Iraq, both in Kurdistan, Khor Mor and Chemchemal. In a mere 15 months, the project was online. By then, Kurdistan could produce 80 percent of all the electricity it needed from gas (the rest is still derived from diesel). The gas was provided at a very affordable price, and Kurdistan Iraq became completely energy independent.
By the end of 2021, production levels reached 452 million standard cubic feet per day of natural gas liquids (NGL) and liquified petroleum gas (LPG). The advantages for Kurdistan from this effective use of their gas are tremendous. First, unlike the intermittent gas coming from Iran, the gas supply in Kurdistan is highly reliable, a crucial feature for economic development and public health. Second, environmentally, it is a better solution than diesel. Third, it guarantees relatively cheap energy. Fourth, in 2022, more than 80 percent of the workforce involved is local, and within two years almost all of it will be local.
Finally, the producing companies are urging the KRG to quickly sign export agreements with Turkey and Baghdad. As Patrick Allman-Ward, CEO of Dana Gas, told reporters in February, "We have flagged to the federal [Iraqi] government and the ministry of oil that we have spare capacity available from our Khor Mor field to potentially supply the federal government through the Jambur pipeline."
This pipeline was originally purposed for condensate export, but it can be repurposed for gas export. Kurdish gas will be cheaper than Iranian gas, and far more reliable. Alternatively, the Kurdish autonomous region can export a great deal of surplus electricity. As Allman-Ward explained, "The KRG has got a total installed [electricity] generation capacity to absorb the amount of [spare] gas but would [then] generate far too much for its requirements. If they take all the gas for power generation then they will need to export electricity to markets in the area or export the gas directly."
Talks between Erbil and Baghdad have begun, but gas-starved Baghdad is procrastinating. The only reason this author can suggest is Iranian intervention. Kurdish gas and electricity can relieve most, if not all, of Iraq's dependence on Iran for gas-for-electricity, and for at least 5 percent (or as much as 15 percent) of its direct electricity consumption.
The Kurdish gas alternative will be more stable, and very likely also cheaper; the same is true when it comes to Kurdish gas to Turkey. In 2021, Iran alone provided 16 percent of Turkey's natural gas needs. Kurdish gas supply to Turkey, too, is therefore seen by Tehran as worrisome competition.
Kurdistan and Iraq are competing with Iran also in terms of oil exports to Turkey. Together with Iran, Russia and Saudi Arabia, Iraq (mainly Kurdistan) has been one of Ankara's top suppliers of crude in recent years. Any further development of Kurdish crude exports represents a threat to Tehran's oil revenues.
Amatzia Baram is a professor emeritus of Middle East history at University of Haifa and writing fellow at the Middle East Forum.