Upsurge in Kurdish Attacks Raises Pressure on Turkish PM To Invade Iraq

· Bomb brings death toll of soldiers in one day to 15 · Erdogan caught between public opinion and U.S.

The Guardian reports:

Turkey's prime minister, Recep Tayyip Erdogan, came under intense pressure last night to order an invasion of northern Iraq following the deadliest attacks for over a decade on the Turkish military and civilians by separatist Kurdish guerrillas.
Mr Erdogan, who has resisted demands from the Turkish armed forces for the past six months for a green light to cross the border into Iraqi Kurdistan, where the guerrillas are based, called an emergency meeting of national security chiefs to ponder their options in the crisis, a session that some said was tantamount to a war council.

A Turkish incursion is fiercely opposed by Washington since it would immensely complicate the US campaign in Iraq and destabilise the only part of Iraq that functions, the Kurdish-controlled north.

Two Turkish soldiers were killed yesterday in booby trap explosions laid by guerrillas of the Kurdistan Workers' party (PKK) - fighters classified as terrorists by Ankara, Washington and the European Union. Those casualties followed the killing of 13 Turkish soldiers in the south-east on Sunday when PKK forces outgunned a Turkish unit of 18 men without sustaining any casualties, according to the Kurds.

Last week, in an ambush also ascribed to the PKK, gunmen sprayed a bus with automatic fire in the same region, killing 13 civilians, including a boy of seven.

The Turkish media described the toll from the attacks as the worst in 12 years in a conflict spanning several decades that has taken almost 40,000 lives.

Mr Erdogan is known to think little of the invasion option, making the pragmatic calculation that it would probably fail. Western diplomats in Ankara agree that an invasion could be counter-productive. The Turkish military raided Iraqi Kurdistan dozens of times in the 1990s but were unable to suppress the insurgency.

After a cabinet meeting dominated by the Kurdish conflict, Cemil Cicek, the Turkish government spokesman, said yesterday: "What is at issue here is how much any action we decide to take would bring us closer to a result." He did not rule out an invasion but queried its "usefulness".

The prime minister, however, is being challenged by the army command, which earlier this year demanded his authority to invade. He is also vulnerable to a mounting public clamour to act because of the upsurge in guerrilla activity and the heavy casualties being suffered. Hardline Turkish nationalists entered parliament in Ankara following elections in July and they are also baying for Kurdish blood.

Following the soldiers' deaths on Sunday, Mr Erdogan signalled a shift in policy without specifying how. "Our campaign against terrorism will continue in a different manner," he said. The Turkish military has just declared 27 "security zones" on the Iraqi and Iranian borders off-limits to civilians, suggesting to some that it might be gearing up for an invasion.

But despite the rising violence, Mr Erdogan has opted for politics in his attempts to defuse the conflict with the Kurds. His Justice and Development party (AKP) enjoyed a stunning success among the Kurdish minority, concentrated in the south-east, in the July elections and he has also focused on political pacts with Baghdad to get the better of the guerrillas.

Last week Iraqi and Turkish interior ministers signed an accord aimed at combating the PKK by trying to cut the rebels' funding and logistics, and agreeing to extradite captured "terrorists". The accord, however, took three days to thrash out; Turkish insistence on a "hot pursuit" formula, allowing cross-border raids, was denied, and scepticism is high as to whether Baghdad can deliver.

Officially, Ankara refuses to recognise or deal with the government of Iraqi Kurdistan, although there have been back-channel attempts over the past year to engage with Massoud Barzani, the president of the Iraqi Kurdish region.

Mr Erdogan's options are also constrained by strong US hostility to an invasion. While Turkish public opinion has been strongly anti-American since the 2003 invasion of Iraq, much of the logistical support for the US troops goes to Iraq via Turkey. Relations are also under severe strain because of US congressional moves to brand the 1915 massacres of Armenians in Ottoman Turkey as "genocide".

Mr Erdogan sent aides to Washington yesterday to lobby Congress on the "genocide" resolution. Ankara is also warning that it could block the logistical support to the US in Iraq if the resolution is passed.

PKK guerrillas

The Kurdish separatist guerrillas of the Kurdistan Workers' party, or PKK, have been at war with the Turkish state since the early 1980s. Although it is now said to favour home rule within Turkey over secession, the PKK has historically pursued the breakaway of Kurdish-dominated south-east Turkey as a prelude to unifying Kurdish lands in Turkey, Iraq, Iran and Syria. Turkey pursued a scorched earth policy in the 1980s and 1990s, destroying thousands of villages, sending millions of Kurds west and leaving some 37,000 dead. Turkey's biggest coup came in 1999 with the capture of the PKK leader Abdullah Ocalan, who was jailed for life.

Kurdistan's Oil Under The Control Of Foreign Companies?

The publication last month of the draft of the Kurdistan Regional Government’s oil law was intended to mark the region’s assertion of control over the development of natural resources. However, it seems that as quickly as it wins its economic autonomy from Baghdad, the KRG wants to surrender it to foreign companies.

Niqash reports:
International oil companies were certainly pleased. "Congratulations and our compliments, this is a modern petroleum law that covers all relevant points," said an e-mail from one company to the KRG’s Natural Resources Minister, Dr Ashti Hawrami.

Dr Hawrami is no doubt keen to attract investment quickly to the region. Having been starved of investment for decades, the Kurdish political parties see greater economic independence - particularly in the oil sector - as a necessary element of federalism. The question is: At what cost does this investment come?

In the consultation on the draft law, some respondents criticised the proposed role for foreign companies, and the type of contract to be signed with them, for giving too much away. Bizarrely, Dr Hawrami characterises such criticisms as “anti-Kurdish” or “anti-federalism”.

The centrepiece of the draft Act is the decision to sign production sharing contracts of up to 32 years with international oil companies. These would give the companies effective control over oil production, as well as a significant share of the revenue from it.

Alarmingly, the draft Act makes no provision for parliamentary approval of such contracts. It is normal practice around the world for parliaments to be given the ultimate right of approval of production sharing contracts, given their profound effect on a country’s economy, politics and even sovereignty.

On the other hand, one positive feature of the Act is that it requires that such contracts be made available for public scrutiny (albeit only after they have been signed) – something the KRG pointedly refused to do with the four production sharing contracts it has already signed since 2003.

The KRG has made at least some efforts to limit the extent of foreign companies’ power, although in practice, it is not clear how effective these would be. For example, any oilfield development would be overseen by a management committee containing equal representatives of both companies and government.

However, both sides would be given an effective right of veto over the most important decisions – which would make it difficult to regulate the rate of production, in particular in relation to future OPEC quotas. This problem has been consistently experienced by Algeria and Nigeria, two OPEC countries with major foreign involvement in their oil industries.

Meanwhile, any disagreements between the KRG and the foreign companies would be arbitrated not in the courts of Kurdistan or Iraq, but in secretive investment courts in London or Washington, DC – courts that consider only the enforcement of the commercial terms of the contract. In a ‘model’ contract published alongside the draft Act, and intended to form the basis for any actual contract negotiations, it further specifies that any such arbitration would take place in the English language, and under the law of England.

But it is when combined with the decentralisation of authority for signing contracts that the cost of the policy starts to escalate. And while the KRG really insists on such decentralisation, the Oil Ministry in Baghdad is totally opposed. Deputy Prime Minister Barham Salih recently told Reuters that the drafting of the federal oil law has been delayed because of disagreements on this issue.

Part of the goal of the publication of the draft KRG petroleum act is to influence policy Iraq-wide. Indeed, the KRG also drafted an act for the whole of the country, which it has presented to the Ministry of Oil, although not made public.

One of the most striking elements of the KRG’s draft law, and presumably of its proposed federal law, is that it assigns control over oil in disputed territories such as Kirkuk to the KRG, with immediate effect, only offering to return such control to the federal government if the planned December 2007 referendum does not choose Kirkuk to be part of Kurdistan. Such an approach would seem to put the cart before the horses.

It is difficult to see any chance of this being accepted – most likely it is included as a negotiating position, which can be dropped in exchange for keeping the other contentious aspects of the KRG’s policy, with the Kirkuk issues to be resolved after the referendum.

But the dispute over decentralisation of responsibility for contracts is not simply a power struggle – it will have a bearing on the economics of oil production as a whole.

The precise terms of any contract – and in particular how the revenues are shared between state and private company – are determined by negotiation. They thus depend on the relative bargaining power of the two sides.

If the decentralisation arguments are taken to their logical conclusion, each region and province would be encouraged to pursue its own policies and strategies, and carry out its own negotiations, to attract investment. Unrestricted competition for investment could hamper coordination in Iraq’s economy and infrastructure, and could sow the seeds of fracturing the country.

Furthermore, it could create a race to the bottom, where each region or province tries to offer more generous terms to attract companies. Multinational companies would conversely have an opportunity to play different regions off against each other, forcing ever greater concessions – at the expense of the Iraqi people.

The KRG has opted for a major role for foreign companies precisely because the KRG itself does not have sufficient expertise to run its own industry, in contrast to the Oil Ministry and the state-owned operating companies.

But this may be a mistake. It seems to be commonly assumed that if there is a lack of technical capacity, the solution is simply to allow foreign companies to make the investment. What this assumption misses is that the investment must be managed – from negotiation, to regulation, to monitoring. And given the scale – hundreds of millions of dollars or more – this too requires institutional capacity.

It is helpful here to recall the early history of Iraq’s oil industry. In the 1920s, Iraq did not have the capacity to develop its own oil; it had to rely on foreign companies. But by signing very long-term contracts with them, the government remained powerless to adapt to the new circumstances as Iraq built up its indigenous skills.

Now, for Kurdistan, there are two other options: work with Iraq’s experts, or take time to build up expertise in Kurdistan. It seems both options have been rejected.

In fact, the KRG seems even more impatient to sign away its resource wealth than some figures in the Iraqi Oil Ministry. In comments last week, Dr Hawrami announced that the KRG was already negotiating with more companies, aiming to sign contracts soon after the draft Petroleum Act is approved by the Kurdish Parliament in September.

This timing can be expected to get the worst possible deal for Kurdistan.

The issue of whether contract-signing authority should be decentralised to the regions is highly contentious, and federal Oil Minister Husayn al-Shahristani has clearly stated that only Baghdad should have that authority.

For a company to sign with the KRG before a federal oil law has been passed, and before the constitutional review is complete, carries enormous risks that the KRG’s Act will later be found legally invalid. As such, any company will expect very high profits to justify that risk. The two possible outcomes are either chaos if the contract is over-ruled, or the giveaway of a large share of revenue if it survives. These terms, despite reflecting the risk at the time of signing, will persist for 32 years.

The citizens of the Kurdish region have a right to see investment in their economy – something which has been denied them through decades of repression. But to seek economic independence from Baghdad, through complete reliance on foreign capital, may constitute a leap from the frying pan into the fire.

Who Controls Iraq's Oil Decisions?

At Niqash, Greg Muttit writes:
The debate over national vs. regional control of Iraq’s oil sector intensified last week, as the new Natural Resources Minister of the Kurdistan Regional Government (KRG) stated his opposition to amending the oil-related articles of the Constitution.

In his first public statement since his appointment, Dr Ashti Hawrami argued that, “the Constitution was adopted as a package by all the people; it is a single document … The rights of the regions and governorates are clear and cannot be modified in any way to enhance the powers of federal authorities.”

He was responding to calls by Iraqi oil experts to use the agreed constitutional review process, culminating in a second referendum, to change the controversial articles, which are seen by some as ambiguous, contradictory or impractical.

The Constitution grants the federal government control only over “current fields”. In most interpretations, the regions and governorates would control all other fields. However, the meaning of “current fields” is unclear.

Iraq has about 80 known oilfields, and many more fields likely still to be found in unexplored areas. Of these 80, only about 20 have ever been developed, and some of those have only partially been developed, producing oil at a fraction of their potential rate. These latter include the four super-giant fields of Majnoon, West Qurna, Nahr Umar and East Baghdad, which between them contain nearly half of Iraq’s total reserves.

A recent research paper by oil expert Kamil Mehaidi pointed out that it is unclear whether the term “current fields” refers to all discovered fields, to those currently in production (accounting for about 78% of Iraq’s known reserves), or just to those which have been fully developed (about 36% of reserves).

Natural Resources Minister Hawrami interpreted current fields as those which are producing oil now. But he went much further, arguing that the regions and governorates should control all of the revenue from undeveloped fields, and should have effective veto power even over the limited roles he prescribed for the federal government.

It is worth considering separately the political issue of who takes the revenue and the more technical issue of who has management control.

Most people accept that some share of revenue should stay in the region in which it was produced, and this is common around the world – it compensates regions for their investment in infrastructure and for the environmental impacts of oil production. However, over time the balance of Iraq’s oil production will shift from fields which are now “current” to those which are new. Thus, with Iraq’s oil mostly concentrated in the south and the north of the country, to give all revenue from non-“current fields” to producing regions could leave other areas – notably the centre and west – impoverished.

The greatest disputes are over who should control oil decisions, such as strategy, policy, operational management, and the role of the private sector, including signing of contracts. Those who argue that regional autonomy should be maximised are concerned that in a centralised system some regions might be de-prioritised for investment and access to resources, a concern felt especially by many Kurds. Others fear that too much autonomy could sow the seeds of division of the country.

Meanwhile, many technocrats argue that too much decentralisation brings the risk of an uncoordinated and bureaucratic system, in which each region has its own approach and procedures. The need for coordination is most obvious with strategic infrastructure that either physically spans more than one region or province, such as pipelines, or serves more than one, such as refineries. Similarly, geology does not recognise administrative borders, and several oilfields straddle more than one province, and potentially more than one region. In the absence of clear coordination, competing authorities keen to maximise their production could damage the geology of an oilfield by overproducing on their side – the problem that at a national level has caused disputes between Iraq and Kuwait.

But the oil federalism issue should not be isolated from the equally big issue of privatisation. Dr Hawrami’s comments on the Constitution came two weeks after the Kurdistan Regional Government signed an oil-production contract with the Canadian company Western Oilsands, the fourth such deal signed by the KRG. It had previously signed contracts with Norwegian company DNO in June 2004, and with Turkish companies Genel Enerji in January 2004 and Petoil in April 2003. DNO recently announced the discovery of oil near Zakho in Dohuk province.

The legal status of these deals is hotly contested, with the Oil Ministry in Baghdad arguing that only it has the right to sign such contracts. On the other hand, Kurdish authorities have argued that the KRG is authorised by the Constitution to sign contracts – even though the first three were signed even before the Constitution was first drafted. It is far from clear how this dispute will be resolved.

All four contracts are with small companies. The major international oil companies are unlikely to invest while there is such legal uncertainty, at least until the finalisation of the Constitution, due to the high risk of losing their investments if the contracts are ultimately found not to be valid. As in any investment, the higher the risk taken by an investor, the higher the profit they will expect, to make it worth their while. So it is likely that these contracts give a very high share of revenue to the companies, with a correspondingly lower share going to the public authorities.

However, the detailed terms of the deals – the revenue split, the legal terms and even the duration of the contracts – are mostly unknown, as they have not been disclosed. For citizens and civil society organisations to know what the revenue terms are is an important defence against corruption, as well as providing for democratic scrutiny.

But although private companies are cautious about legal uncertainty, they benefit from negotiating with weaker public institutions. The regions and provinces do not have the strategic and negotiation experience that is possessed by the Oil Ministry in Baghdad. And if the Kurds’ precedent is followed elsewhere, the result could be a race to the bottom, in which different regions compete with each other to attract investment by offering greater shares of revenue – and more generous legal terms – to private companies.

While the desire for greater regional autonomy is understandable, it could in fact end up also transferring power – and more of Iraq’s oil wealth – from public to private sector, and from Iraqis to foreign companies.