Revenge of the Kurds

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The Islamist insurgents, known variously as ISIS and ISIL, continued their drive south toward the Iraqi capital on Thursday after having captured key northern cities, including Mosul. No less vigorous has been the Kurdish response: In sharp contrast to the Iraqi military forces, which evaporated despite outnumbering ISIS fighters, Kurdish military forces on Thursday took Kirkuk, an important city straddling the Arab and Kurdish parts of Iraq and the centerpiece of the northern oil industry. The Kurdish occupation, in a matter of hours, of a city that has been a bone of contention between Arabs and Kurds for centuries -- and especially during Saddam Hussein's rule of Iraq -- underscores how dramatically the ISIS offensive is redrawing the map of Iraq.

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The contrast between robust security in Kurdish-ruled parts of the country and the security vacuum left by fleeing Iraqi troops could ultimately roll back decades of Iraqi history and put Kurdish leaders in Erbil in the catbird seat, especially when it comes to a contentious tug of war over energy resources.

"The strategic failure of Iraqi forces has really shifted the entire balance of power between the Kurdish Regional Government and Baghdad," said Ayham Kamel, Middle East director at the Eurasia Group, a risk consultancy. "It really allows the KRG to negotiate with Baghdad on entirely different terms" when it comes to a fight over the Kurds' right to export oil directly.

For years, Kurds in northern Iraq sought to benefit more from the region's abundant oil and gas resources, but energy exports were centralized in Baghdad, with export revenues shared among Iraq's regions. Kurdish leaders argued that the deal shortchanged them because they never got the 17 percent of revenues they were promised.

As a result, the Kurds decided -- in the face of a barrage of threats and intimidation from Baghdad -- to build their own energy-export infrastructure, enabling them to transport oil directly to nearby Turkey. That pipeline opened this year and energy firms operating in the region say that it will be fully operational later this year. Getting the export pipeline up to cruising speed is important for the Kurdish government. It needs to export about 450,000 barrels of oil a day to earn what it received from the central government. By the end of next year, the KRG hopes to be exporting as many as 1 million barrels a day.

But just recently, Baghdad seemed capable of crushing Kurdish energy dreams. Only hours before the ISIS offensive began, Iraqi officials were vowing to take the dispute to the United Nations. The legal uncertainties surrounding Kurdish oil kept it from flowing easily to new buyers. For example, a pair of tankers loaded with Kurdish crude wandered around in search of a port in May and June. U.S. officials long sought to push Erbil and Baghdad into an agreement over how to divvy up the nation's energy wealth and tried to discourage the Kurdish government's go-it-alone stance.

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Kurdish control over Kirkuk, and the massive oil fields found nearby, could have a ripple effect on the rest of Iraq's oil industry, Eurasia Group's Kamel said. That is, the Kurdish-style oil contracts, which offer foreign firms a share of the oil, could displace the less attractive Iraqi-style contracts at those mammoth fields.

"The KRG could actually push its interests and dictate terms for future contracts at the Kirkuk field; it wouldn't just be the central government dealing with that," he said.

Whether the Kurds come out stronger from Iraq's harrowing battle against extremists depends on how well they insulate themselves from violence and instability.

"The question now is whether Kurdistan can remain an oasis of stability despite the turmoil around it. If it does, its oil future is huge -- it now controls Kirkuk and its fields and oil exports could increase immediately," said the Wilson Center's Ottaway.

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