Oil

   Kurdistan possesses some of the largest oil reserves in the world. Kirkuk, long a bone of contention between the Iraqi Kurds and the Iraqi government, holds by far the most productive resources in northern Iraq, which largely explains why the area has been so hotly contested. Mulla Mustafa Barzani tried to solicit the support of the United States during his rebellion by declaring he would turn over the oil fields to the United States and make an independent Kurdistan a friend of the United States in the Organization of Petroleum Exporting Countries (OPEC)!

   An important oil pipeline carries the oil from Kirkuk through some of the Kurdish areas of Turkey but skirts south of the Iraqi Kurdish area. Before the 2003 U.S. invasion of Iraq, much of the financial resources of the Kurdistan Regional Government (KRG) in northern Iraq stemmed from the 13 percent of Iraq's oil receipts it received from the United Nations, as well as the fees it collected from the surreptitious oil trade that traversed it from Iraq to Turkey. Presently, the KRG receives 17 percent of Iraq's financial resources, which mainly come for oil receipts. The little oil that Turkey produces comes from Kurdish areas centered around the town of Batman east of Diyarbakir. With the discovery of the huge new Rumailah oil fields in southern Iraq, the older Kirkuk sites have lost some of their earlier importance.

   After 2003, one of the major issues between the KRG and the central government in Baghdad involved the usage of oil fields in northern Iraq. The KRG argued that Article 115 of the new Iraqi constitution stated the supremacy of regional laws over federal laws and could be invoked if no agreement was reached on the management of oil and gas resources and the distribution of proceeds. Article 112 of the constitution permitted the Iraqi government only an administrative role confined to the handling (that is, exporting and marketing) of the extracted oil and gas from existing producing fields. The elected authorities of the regions and producing governorates were now entitled to administer and supervise the extraction process. Furthermore, since the Iraqi constitution was silent on undeveloped fields or any new fields, the regions and governorates would have all the controls. In 2009, the KRG began leasing new oil concessions to foreign companies, but the Iraqi central government continued to maintain that this was unconstitutional. The debate threatened the very foundation of the KRG/Iraqi relationship.