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Turkey threatens Iraqi Kurdistan, Crude Oil Prices Rise

By Patrick Higgins  |  26/09/2017 14:19

Turkey flexed its muscles much more heavily than expected to the prospect of a, "Yes," vote in the Iraqi Kurdistan independence referendum, with Erdogan threatening yesterday to shut the borders down entirely to Kurdish oil & gas exports that would go through the Turkish port of Ceyhan.
Turkey's prime minister, Binali Yildirim, echoed these sentiments, stating that airspace and border access could also be closed.  Yildirim also pledged to hold high-level talks with Baghdad to discuss ways of punishing Iraqi Kurdistan further for holding the vote.  Both Ankara and Baghdad have stated that they would not respect the Kurds' legal right to hold a referendum, and would consider any outcome to be illegal and void under international law.
Despite the tremendous international pressure, the Iraqi Kurdistan's referendum went ahead, with results released today indicating that more than 93.3% of voters voted, "Yes," towards future independence.
Regarding the threats, Erdogan did not explicitly say that the Ceyhan pipeline would be cut off but made it entirely clear that the option to do so was always on the table.  In no uncertain terms, he is quoted as saying, "After this, let's see through which channels the northern Iraqi regional government will send its oil, or where it will sell it. We have the tap. The moment we close the tap, then it's done."
To cut off the pipeline would have enormous economic implications for Kurdistan, which just last week signed a $1 billion deal with Russian energy firm Rosneft to develop oil fields and additional pipeline infrastructure.  The Ceyhan pipeline carries 500,000-600,000 bpd and is a huge revenue builder for both Turkey and Kurdistan.
Turkey, with the region's largest Kurdish minority, is terrified at the prospect of an independent Kurdish state at its backdoor.  Turkey's own Kurdish population is restless, with an insurgency against the state in the form of the terrorist group PKK present since the 1980s.  What is especially worrying to the Turkish authorities is that the PKK's leadership operates out of northern Iraq, and they fear that an independent Kurdistan would limit Turkey's ability to target leaders.  Since the insurgency began in 1984, tens of thousands have died, and Turkey stresses that an independent Kurdistan would cause its own Kurds to catch their second wind and rise up in absolute force again.
Turkish Airlines, which flies directly to Irbil and other cities in Kurd-controlled northern Iraq, saw its stock price fall 6.5% on the BIST 100 earlier today.  Additionally, the potential loss of access to Kurdish oil on the global market, combined with the 1.8 million bpds worth of cuts from OPEC and associated producers, drove Brent futures to their highest price since 2015 and WTI futures to their highest in five months.  After having hit $59.49 late last night, Brent crude dropped to $58.85 around 8:20 AM GMT, with WTI crude falling to $52.12 from $52.43 around the same time.
The matter of a sovereign Kurdish state merely existing, especially amidst multiple regional wars with no clear winners, is entirely unacceptable to Turkey, Iraq, and its allies.  The idea that Turkey would abide an independent Kurdish state, as long as economic gains were to be made, was far-fetched.  Rash action has been avoided for now, as Ankara will want to see how the KRG (Kurdish Regional Government) begins proceedings towards securing its independence from Iraq.  However, make no mistake, if an independent Kurdistan does emerge, Turkey is likely to take severe measures towards containing it.  Though Kurdistan does have multiple high-level international investments, most importantly from Russia, the KRG needs a friendly neighbour to export its oil & gas through, and it does not have one in Turkey.


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