As al-Qaeda continues to terrorize parts of Iraq, another battle looms over the country: control over Iraqi hydrocarbons and revenues. The Kurdistan Regional Government (KRG) is pressing ahead with its plans to independently export and sell Kurdish crude to Turkey, while Baghdad has threatened to cut the KRG’s budget and take legal action against Ankara. These tensions are occurring as oil-producing provinces are making their own oil and revenue demands, and threatening to boycott parliament and stage demonstrations. While this type of brinkmanship is common to post-Saddam Iraqi politics, it underlines the new fault lines that have emerged between Baghdad and provincial and regional authorities. These lines indicate that a viable power-sharing arrangement will be determined by fair access and distribution of the country’s oil wealth.

The heightened energy rhetoric reflects the opportunity to maximize political interests and leverage by Erbil and Baghdad. The KRG calculates that weakened Iraqi Prime Minister Nouri al-Maliki needs Kurdish backing in the forthcoming elections to win a third term. KRG support includes Peshmerga (Kurdish militia) security assistance against al-Qaeda threats, particularly in the disputed territories. The KRG’s strengthened position also is shaped by its energy sector successes, including a newly built pipeline that connects to the Iraqi-Turkish pipeline (ITP), oil contracts with major international oil companies (IOCs) and Turkish partnership. The KRG also is “fed up” with Baghdad and the numerous failed attempts to export its crude and secure consistent or full payment.

These developments have encouraged a more nationalist and less compromising KRG position. Whereas in 2010 the KRG recognized Iraqi State Oil Marketing Organization (SOMO) as having the sole right to export Kurdish crude, by 2013 it had denied SOMO’s role in Kurdish energy sector development. Instead, the KRG states that its newly created Kurdistan Oil Marketing Organization (KOMO) is now the region’s export agency. The KRG has also tendered sales of its crude in the Turkish port of Ceyhan via KOMO to affirm this right.

Baghdad, however, has a different perception of the KRG’s leverage and energy strategy. Aware of Erbil’s financial dependency on the Iraqi government and the region’s current financial woes — Sulaimaniyah banks have been without cash for weeks and civil servants have not been paid — some Iraqi officials are willing to “call the KRG’s bluff.” They, too, have heightened the threat level by using Iraq’s own trump card: withholding KRG revenues, which represent 95% of the KRG annual budget. Baghdad also has resorted to legal action, arguing that exporting natural resources from Iraq without federal government approval is equivalent to taking confiscated or stolen property. Neither Erbil nor Ankara can therefore legally load tankers in Ceyhan and sell Kurdish crude without the risk of international arbitration from Baghdad.