Nights of the Roundtables: Can Russia keep the peace after Kurdistan’s referendum?

By Nick Trickett

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A still from White Sun of the Desert. (Photo: illuzion-cinema.ru)

The Middle East, as most Russians know from the classic Soviet film White Sun of the Desert, is a delicate matter.  Recent events have done little to change that perception: Iraqi Kurdistan’s referendum has triggered an array of aggressive responses from Turkey, Iran, and Iraq. Russia’s ambitions to play powerbroker in the region are being put to the test. It’s hard to say Putin has the lightest personal touch, but he and Russia’s diplomats will need one. Playing all sides has its limits. Bear Market Brief spoke with Jeff Mankoff, Deputy Director and Senior Fellow at the Russia/Eurasia program at the Center for Strategic and International Studies, to get a better sense of the bilateral and regional dynamics at play between Russia and the three main state actors in the crisis: Turkey, Iran, and Iraq. More broadly, what are Russia’s interests in the Middle East? And what might limit them?

Turkey: The Sultan of Swing

Turkish president Erdogan came out swinging against the referendum in the run-up to last Monday and has kept swinging since. Speaking to the AK Party in Erzurum, Erdogan said “They are not forming an independent state, they are opening a wound in the region to twist the knife in.” Harsh rhetoric has come with heavy-handed threats: the potential closure of the border crossing at Habur, sanctions on Kurdish oil exports, Turkish tanks parked near the border, and an agreement with Iraq that all Kurdish oil exports should be controlled by the government in Baghdad and its trading arm. It’s clear that Ankara is committed to making any attempt to secede from Iraq painful.

The Habur border crossing is the only one on the Turkish-Iraqi border. An estimated $4.5 billion in Turkish exports passed through Habur in the first half of this year. Trade with Kurdistan supports thousands of people living on along a road corridor running from Habur to the Eastern Mediterranean port of Mersin (İçel). Habur is the unnamed endpoint of the gray road in southern Turkey on the map below.

TurkishHighway
The Turkish highway network.

Choking off trade would seriously hurt the livelihoods of many living in southern Turkey. Further, Mersin is a gateway for trade with Cyprus and a large drop in trade volumes could affect politics on the island. Turkish threats of cutting of KRG oil exports through the Kirkuk-Ceyhan pipeline would do similar damage to trade and the local economy given the role oil revenues play in funding Kurdish imports of Turkish goods. Iraqi Prime Minister Haider Al-Abadi has suggested via Twitter that the government in Baghdad would like to take control of Kurdish salaries in the oil industry, a move that would necessitate Turkish cooperation and give Ankara another bargaining chip in trying to tamp down any spillover into effects with Turkey’s Kurdish population. Yet with all of the militant posturing that Erdogan has shown, Russia has considerable leeway to influence Turkey.

“Russia has Turkey where it wants them,” Mankoff said. “Turkey’s relationship with the West is awful right now and Erdogan worries the West is not opposed to seeing his government fall.” That fear is compounded by Turkey’s strategic situation. “Russia controls or has much influence over all the key strategic access points to Turkey: the Black Sea is increasingly a Russian lake, the Syriza government in Greece is close to Moscow and angry at the European Union, Russia has a strong hand in Cyprus, and of course much influence in the South Caucasus. Turkey is also heavily dependent on Russia for its energy needs and trade,” added Mankoff.

Reports have come out that Russian gas deliveries to Turkey are up 24.3% year-on-year. Increased Gazprom deliveries bolster the market case for the Turk Stream pipeline currently under construction – Gazprom and Turkey’s BOTAŞ ratified a joint venture for construction of onshore sections last Monday – and may help drive prices down since Turkey lacks natural gas storage capacity. Russian oligarchs who’ve purchased Cypriot citizenship have also apparently formed a centrist political party in Cyprus that supports further UN talks on reunification and hopes to stand in elections in 2019. The move signals Russian intentions to have a say in settling territorial disputes on the island, an energy security concern for Turkey which would like to import natural gas by pipeline from Israeli offshore fields.

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Might the Eastern Mediterranean become a natural gas hub? (Graphic: Enr.com) 

The new party could also exploit the domestic effects of drops in trade flows through Mersin. Turkey and Russia remain aligned on finding a political solution that preserves Syria’s territorial integrity according to Erdogan, a shared goal in Syria that would prevent an independent Kurdish political body from forming.

These moves play on Erdogan’s growing concerns about Turkey’s relationship with the West after the attempted coup last July. According to Mankoff, “Turkey is caught up in anti-western paranoia and needs Russia. Russia immediately condemned the coup and used the moment to signal that it would stand by its partners in the region when things get tough, unlike the U.S. response to Hosni Mubarak’s ouster. Egypt’s military and others in the region saw that the U.S. would wouldn’t back partners when push came to shove.” As such, Turkey is feeling isolated and scared.

Erdogan’s harsh rhetoric reflects his tenuous position swinging from East to West. The now agreed upon sale of S-400 from Russia to Turkey has rung many alarm bells in the West. The air defense system is a crucial component of Russia’s area denial capabilities and has been deployed to Syria and would mark a significant deviation from buying NATO equipment. Turkey has placed a down payment on the delivery though the timeframe remains unknown. But the sale is not necessarily the massive break from NATO it’s often perceived to be. Greece now holds a series of S-300s transferred from Cyprus and Turkey could offer NATO forces access to see how the Russian technology operates. “NATO would be particularly interested in the radar systems,” said Mankoff.

Erdogan can grab a megaphone to complain about human rights violations in Crimea, perhaps bother Russia in Moldova over Gagauzia and Transnistria at the UN or unilaterally, and can dangle a free trade agreement (FTA) with Ukraine in front of Russia. But the little leverage he has would ultimately harm Turkey too. Russia can do much diplomatically to pressure Turkey. Mankoff also noted that “Turkey’s army is a shadow of itself after the purges, so Turkey still needs the West, particularly NATO.” Erdogan himself said to parliament last week “we don’t need EU membership anymore,” citing its failure to help Turkey fight terrorism. But talks remain open.

The stakes of Turkey’s vacillation keep rising as it ping-pongs back and forth to Russia’s gain for the time being. Turkey just launched an operation with the Free Syrian Army in the Idlib province in northern Syria, linked to a trilateral agreement with Russia and Iran to create a “combat free-zone” in Idlib. Many analysts see it as de facto support of a political transition post-Assad given cooperation between Turkish and Russian troops. But Turkish intervention during Operation Euphrates Shield suffered from a lack of air support. If the current operation escalates, either Turkey is getting more serious about Syria – a factor in addressing the Kurdish referendum – or Russia is willing to provide that support. These constitute political victories for Russia as it seeks to increase its bargaining power in Syria and elsewhere with other regional actors.

From Iran, With Love

 Iran immediately responded to the referendum with an embargo of all fuel trade with Kurdistan last week, a big step since the region imported 110 million liters of gas oil from Iran last year. Tanks and artillery have been deployed to the Parviz Khan border checkpoint between Kurdistan and Iran under the cover of joint military exercises with Iraq. These moves fit into Baghdad’s initiative to seize control of Kurdistan’s borders with the help of both Turkey and Iran alongside the closure of Kurdistan’s airspace. Iran complied with Iraq’s request to refuse entry to Kurdish flights.

Like Turkey, Iran’s concerns over the referendum are rooted in dealing with its own Kurdish population. Both countries have moved to close Kurdish news bureaus or restrict Kurdish media outlets’ ability to transmit in the few weeks. Estimates place the value of the smuggling trade from Iraqi Kurdistan into Iranian Kurdistan at $3.6 billion a year. As with Turkey, Iranian restrictions on the border will affect livelihoods, force more trade into the black market, and harm its Kurdish communities struggling with extremely high unemployment rates. The recent referendum has revived hopes among Iranian Kurds that they might be able to achieve greater autonomy and independence in the end.

Whereas Russia has considerable leverage over Turkey, it has considerably fewer carrots and sticks to offer Iran in hopes of getting them to back down militarily. Iran is an energy exporter and does not have the same issue balancing East and West facing Turkey. Trade between Tehran and Beijing hit $18 billion in July, accounting for 21.72% of Iran’s commercial exchanges with foreign countries as its trade with Asian partners diversifies. Russian-Iranian trade is a pittance compared to that. Iran will soon be exporting 100,000 barrels of oil to Russia to be paid for half in cash and half in physical goods like grain. But this isn’t much to work with. Russia’s energy firms in Iran released their investment plans for Iranian projects in early September. The scale of the projects and investments are relatively small for now and will take years to have an impact.

Iran’s role in Syria boxes Russia in. According to Mankoff, “the Russian-Iranian relationship on the ground isn’t that great and Iran has a bigger voice and veto power with Assad over any proposals put forward by Russia. I’d guess that Russia failed to negotiate a political transition for a post-Assad Syria, in part, because Iran didn’t endorse the idea.” Assad’s military was estimated to have between 80,000 and 100,000 men as of October, 2015 and “current estimates place the effective strength of Assad’s military at around 30,000 men. Assad needs Iran to control territory,” Mankoff added. Russia’s presence in Syria has focused on airpower and in the end, it’s the forces on the ground that win the most influence.

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Where Russia has the upper hand over Turkey, it lacks the same levers of influence with Iran as well as mutual trust. To a great extent, it has to suffer whatever decisions Tehran makes and find a way to minimize any blowback when interests conflict. Iran can make things more difficult for Russia in Syria, a sensitive point after the death of Russian Lieutenant General Valery Asapov near Deir al-Zor last week. Volunteer forces of so-called “military police” are increasingly being deployed to Syria in a display of what Mark Galeotti terms “hard soft power,” a ploy to help bring law and order. But the Syria intervention isn’t popular with the public and a political issue for the opposition and general discontent domestically.

A political transition post-Assad would have been a PR coup for Russia’s standing as well as a way out. Iran and Assad effectively vetoed a crucial piece of Russia’s regional aspirations and are preparing for the long haul. Iran is expected to take a leading role in a refinery project in Homs. A transition is looking less likely at present. Even though Turkey is cooperating with Russian troops, the Kurdish referendum has helped bring Turkey and Iran together. Presidents Erdogan and Rouhani met while Saudi King Salman visited Moscow last week, a conspicuous signal. It will take much time before Russia’s leverage over Turkey can be assessed in relation to the political effects of the two countries’ outreach.

Iraq: A Limited Engagement

 Russia’s relationship with Iran bleeds into its approach in Iraq given the influence of Iranian-backed militias in the country’s security and political environment. The day of the referendum, Putin issued a statement affirming Russia’s support for Iraq’s territorial integrity in tandem with President Rouhani for a reason: the fate of Iraqi Kurdistan will affect Syria and any kind of settlement in Syria and Iraq will require Iranian participation and leadership. Yet Baghdad can help drive Iranian and Turkish responses to the referendum.

Unless Kurdistan is an internationally recognized state, Baghdad can claim legal jurisdiction over its borders, roads, and airports. The Iraqi government closed Kurdish airspace using its formal control, a move that gives Baghdad grounds to seek legal recourse for any violations. Ukraine has done a similar thing to choke off Russian trade to Crimea’s ports.

Iraq called for the joint military exercise with Iranian troops just hundreds of meters from the border, the first such exercise between the two countries since 1979. Doing so gives political cover to both Turkey and Iran cover to act in militant fashion to defend their interests. Iraq’s Central Bank suspended the sale of dollars to key Kurdish banks, but walked back on all but four banks in the region. The restrictions are to be lifted completely if Kurdish banks disclose all of their transactions.

Russia resumed negotiating arms deals with Iraq in 2012. Tehran reportedly pushed Baghdad to buy Russian weapons to lessen US influence in the country. The deal seemed to be briefly suspended as disagreements erupted between the Prime Minister’s office – the US jumped in to try and scuttle the deal – and the Defense Ministry who was more than amenable to using Russian weapons. The play was smart on Russia’s part. They announced the deal, not Iraq, and negotiated directly with the Minister hoping to force a decision and buy support through graft. By July 2013, the $4.3 billion deal including Mi-28NE was back on. As we know from last week, Russia is involved in Iraq’s upstream. It therefore has person-to-person contacts in the Iraqi Oil Ministry beyond any necessary haggling over OPEC supply cuts.

Even with these, Russia does not have a clear lever or means of inducing Baghdad to back down and it’s unlikely that Baghdad would go for a Confederal agreement with Kurdistan. However, Russia, Iraq, Iran, and Syria signed an intelligence sharing agreement in September 2015 to share intelligence on the Islamic State. The agreement was a significant development but doesn’t necessarily point to anything Russia can meaningfully do in terms of its influence. Erdogan has seized the lead in presenting a public face of cooperation. After visiting Iran to see Rouhani, he stated “if a decision will be made on closing oil taps in the region, that will be made by us. Turkey, Iran, and Iraq’s central governments will do so together.” Iraq can continue to posture its military, cooperate with Turkey and Iran on border closings and seizures without much Russian input, legitimize their actions, and use legal and financial means to escalate or deescalate. Erdogan’s posturing may push Russia to increasingly rely on Turkey, a trend that Baghdad may try to exploit.

The Limits of Control

 Amidst the various security, political, and economic issues surrounding the referendum, energy remains the biggest sticking point of what Russia and its firms stand to lose should things go south in Kurdistan. With different corporate goals, there are signs of divergence between Rosneft and Gazprom over what to do in response. Azerbaijan state-giant SOCAR and Gazprom’s natural gas interests are at stake.

Gazprom just scrapped the Halabja field in Kurdistan, citing geological risks and high uncertainties. There may be truth in that, but Gazprom Neft began upping its security in Kurdistan last week and it’s likely that the threat of conflict makes exploratory operations too risky for Gazprom. At the same time, Gazprom is set to open a regional office in Azerbaijan to deepen ties with the country’s energy giant SOCAR. Bear Market Brief reached out to Jack Anderson, a consultant at FTI Consulting, about Gazprom’s move and gas politicking in the region.

“Allowing Gazprom into the playing field fits with Azerbaijan’s overarching strategy of creating as many beneficial relationships as possible. However, the Azeris will need to be careful not to give too big or too small of a position to the Russians,” Anderson said. SOCAR recently renegotiated its Production Sharing Agreements to increase its stake in Azerbaijan’s fields. According to Anderson, “economic considerations largely drove the Azeri government to renegotiate the PSA. Foreign companies made a lump payment of $3.6 billion to Azerbaijan. This money – along with increased revenues from its larger share of ACG production – will support extensive government spending.”

Gazprom is negotiating selling Azerbaijan larger volumes of its gas so that Azerbaijan can make more money off of exports to European markets and meet its contractual obligations. Gazprom and its network in and around power are likely lobbying a retreat from Kurdistan given that it would fit within their interests. Their market position in Turkey is secure, its exports to Europe and Turkey are up 11.3% year-on-year thus far, and a presence in Baku will give them a greater role in the Kremlin’s management of relations with Azerbaijan.

Rosneft has stuck Putin out on a limb by helping negotiate billions in oil supply deals from Kurdistan and committing to billions in investments. But the specter of Kurdish gas is a big draw that would help Russia undercut European attempts to diversify suppliers, though not an issue that hurts SOCAR per se. Anderson commented that “European gas demand is steadily growing, so Azeri and Kurdish gas will be able to find European markets as soon as the Southern Corridor is complete. Even if related pipelines fill up with Kurdish gas, SOCAR will still collect transit fees.”

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Linking East to West: planned pipeline infrastructure in Central Asia, the Caucasus, Turkey, and Europe. (Source: Trans-Caspian Pipeline.com)

With this in mind, Rosneft’s aims would not be to displace Azeri or Russian gas volumes going into Europe. Rather Rosneft could use Kurdish gas to affect contracts on price. “Whatever Turkey is paying for Azeri gas, the EU would probably have to match or pay more. Otherwise, why bother sending gas all the way to Europe if you’re SOCAR? Even if SOCAR is knocked out of take or pay clauses [that protect suppliers against losses], it owns its own trading operation in Switzerland that could hedge on the spot market.” Kurdish gas volumes could speed up the decline of such take or pay clauses on European markets and movement toward spot pricing. Spot pricing responds quickly to supply and demand, unlike long-term contracts. These developments would be a big win for Rosneft at home since Gazprom depends heavily on revenues from exports.

Rosneft’s willingness to deal in Libya and commitment to Venezuela suggest it has a larger appetite for risk than Gazprom. It should be noted that they would also benefit European consumers and SOCAR since it would weaken Gazprom’s bargaining position for supply deals with Azerbaijan. Partially for that reason, SOCAR has been willing to negotiate with Iraq for access to the Southern Corridor.

With the two energy giants likely backing different diplomatic approaches, Russia is running out of means to influence events with its arsenal of autocracy: energy and military intervention. As Mankoff remarked, “Russia is hitting the point of diminishing returns. Post-conflict in Syria, they lack anything to give.” Russia’s contributions are largely limited to arms sales and military operations within its capabilities. The same problem colors Russia’s options in Iraq, aside from oil and gas investments and defense deals. Russia can lean on Turkey, but Erdogan is volatile. Russia can’t lean heavily on Iran or Iraq, nor can it afford to finance reconstruction after territories are seized. The same problem would apply if it got sucked into an armed conflict in Iraqi Kurdistan from the diplomatic side. Russia is a wartime consigliere in the region, not a builder.

Putin is looking for ways to avoid blowback from the aftermath of the venture in Syria. Saudi King Salman’s visit to Moscow most certainly included discussions of Syria, as Russia needs a better working relationship with the Kingdom if it wants to hedge against the risks Assad and Iran’s refusal to support a political transition pose. It’s conceivable that Russia could hope to push a peacekeeper deal for the Donbas in Ukraine in exchange for European commitments to finance reconstruction in Syria. But Russia’s forays into European and American politics jeopardize its attempt to link Syria and Ukraine in the West: domestic audiences increasingly won’t stomach compromises on Ukraine if Russia is perceived to be interfering in domestic affairs.

For now, Russia is doing its best to restrain Turkey and hoping that Iraq and Iran don’t try anything stupid. Barzani seems to have overplayed his hand as the threat of armed conflict grows. Erdogan is notably out ahead of Tehran and Baghdad, most aggressively threatening to curb Kurdish oil exports as Putin continues to publicly caution against it. In short, it’s a mess. A completely independent Iraqi Kurdistan would likely hurt Russian interests in the region due to the various conflicts of interest it would cement. The best outcome for Russia would likely be something along the lines of a confederation between Erbil and Baghdad. Such a result could be invoked for future talks on Syria – Syrian Kurds opened a diplomatic mission in Moscow last year and now seek Russian support for autonomy – and could come up in future proposals regarding the Donbas in Ukraine. None of the regional powers would likely stomach a confederation to settle the issue.

Russia’s Great Power pretensions are best served by becoming indispensable negotiating partners, a goal aided by energy investment and financing deals in Kurdistan. But Russia faces the Uncle Ben dilemma of geopolitics: with Great Power comes great responsibility. Putin may be “the new master of the Middle East” as noted in Bloomberg, but he will struggle to balance domestic and foreign interests around the referendum. An increase in Russian influence in the region is only a strategic victory if Russia wins the peace. There’s no clear path to that end. The specter of greater Russian-Saudi cooperation after King Salman’s visit to Moscow last Wednesday will only complicate Russia’s relations with Iran at a time when Russia needs to use its relationships with Turkey and Iran to pressure the West to help rebuild Syria. Uncle Ben would be disappointed: the assumption of great power hasn’t yet made Russia responsible.

 

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