How Upcoming Kurdish Independence Vote Could Roil Oil Markets
Ellen Wald, PhD | Sep 18, 2017 16:21
Back in June, 2017, the Kurdistan Regional Government (KRG) supposed to control 6% of Iraq’s oil resources but actually controls about 20%.
If the KRG votes for independence and is able to militarily maintain that independence, there is the potential for an independent Kurdistan to control approximately 28.5 billion barrels of crude oil reserves. This would put the new country among the top oil producers in the world, just above Nigeria.
From a purely oil market perspective, the referendum might oil fields to Turkey.
h3 Will an independent Kurdistan cause a rift in OPEC?/h3If 20% of Iraq’s current oil resources are determined to be under the control of a new, independent Kurdish state, other OPEC members may seek to bring the KRG into OPEC in order to keep this oil under the cartel’s agreements. If powerful OPEC members like Saudi Arabia, the UAE and Kuwait reach out to the KRG in a way that provides international recognition of Kurdish independence, they could cause a serious rift with Iraq and Iran. One sign that this might be coming is if OPEC invites a representative from the KRG to its next meeting in Vienna in November.
If OPEC fails to bring the 20% of Iraqi oil controlled by the KRG into the cartel, it could cause a rift with key non-OPEC participants in the production cut deal. Russia and Kazakhstan have already expressed displeasure with OPEC’s failure to curb oil production in member countries Libya and Nigeria. An uncontrollable producer in an independent Kurdistan would further worry the non-OPEC participants in the current production cut agreement. To maintain the production cut agreement, it may be important to keep Kurdish oil within the cartel.
The Kurdish independence referendum represents a significant unknown to oil markets. No one knows how the process will unfold and how geopolitical and oil alliances will be redrawn.
Often, big events fizzle with little result, but sometimes they lead to unforeseen regional change and rebalancing of economic and geopolitical power. A Kurdish declaration of independence will introduce a new, non-Arab country into the heart of the Middle East and no one can quite predict what will result.
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