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A member loyal to the Islamic State in Iraq and the Levant waves an ISIL flag in Raqqa, June 29, 2014.
Reuters/Stringer
What drove Baghdad and the Kurds together.
OUT OF THE SHADOWS

The oil deal between Baghdad and the Kurds is a bad sign for smugglers

Iraqi Kurdistan’s days of smuggling tanker-loads of oil off the Turkish coast and through shadowy middlemen are over—at least for now. It has finally signed a deal with Baghdad that allows its oil to be exported legally, a concession by the Kurds, who have long sought a separate state, that they were not quite ready for independence.

Today’s agreement, midwifed by a mutual decision to fight ISIL and save the state, allows the Kurds to ship a considerable volume—550,000 barrels a day—through a dedicated pipeline that they opened up in the beginning of the year to the Turkish port of Ceyhan. In exchange, Baghdad will resume paying the Kurds 17% of the state budget, plus fund the Peshmerga, the local fighting force.

The winners from the deal include foreign oil companies that have flocked to Kurdistan in recent years (and abandoned Iraq proper) because of better contract terms. Until now, it’s not been clear how ExxonMobil, Chevron, Total, and others would legally export their oil. All year, the US and Baghdad vigorously threatened potential and actual buyers of more than 20 million barrels of Kurdish crude oil shipped furtively on tankers out of Ceyhan. One of the tankers, the United Kalavyrta, has been marooned off the coast of Texas for four months, locked in a legal battle with Baghdad.

The new agreement provides “another step towards de-risking Kurdish exports,” an oilman working in the region tells Quartz.

By allowing for more export sales, the agreement also provides fiscal relief to both Baghdad—reeling from a 40% plunge in oil prices—and Kurdistan, which hasn’t been able to pay government workers for months.

This does not mean that the Kurds will stop seeking independence. But it alleviates one crisis in the region, allowing Baghdad and the Kurds to focus on survival against ISIL and low oil prices.

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