Theme: Energy & Transit
Five years ago the free fall of oil prices have had important implications for economies around the globe. Decreasing prices have jeopardized the rules of the game and increased tensions on the already existing cleavages of both the global, as well as the regional political powers.
The OPEC collective is responsible for 40% of the world’s oil production and as a framework for cooperation between oil producing countries, they have considerable leverage in determining the global oil market. One of the main challenges of the individual OPEC members is balancing the increased need to attract foreign investments without jeopardizing the national control over their resources. This article argues that the unilateral US decision to withdraw from the Iran deal and to re-impose sanctions on Iran - of which the upcoming November restrictions on oil will hit the Iranian economy right in the heart- creates opportunities for regional stakeholders.
The World of Oil: Complex Geopolitical Dynamics
When assessing the current regional relations in the Middle East, we cannot ignore the preferences and energy interests at stake of the global powers. The US has been rapidly increasing its domestic oil production however, its supply cannot keep up with the national demand and the Middle East oil therefore, is still of major importance. 
Russia, which relies for approximately half of its budget revenues from oil exports, saw its national budget under severe stress as a result of the volatile oil prices while digesting additional economic sanctions imposed by the West for its involvement in Ukraine.
With regard to energy interests, it seems that both states have recently found common grounds in shaping the Middle East oil dynamics. The dual approach has not only significant repercussions for regional affiliations between states but also for the Western world order. The plummeting oil prices made OPEC and its non-aligned member Russia, agree on regulating oil production rates in late 2016 in order to drive up prices.
This was not to the liking of the Trump administration which has to handle increasing voter pressure because of subsequent rising consumer prices. Another important factor is that both Putin and Trump are closely linked to their domestic oil producers and distributors that currently have a shared, short time, incentive in keeping oil prices low.
International motives to keep Iranian Oil out of the Global Oil Market
With Iran and Venezuela isolated from the global oil market, a supply gap will occur, meaning that market prices are likely to increase. In order to counter the pressure of rising prices, Washington and Moscow are aligning their policies. Both Putin and Trump have been putting pressure on Saudi Arabia to increase production levels instead. It seems like a US attempt, with Russian contempt, to isolate the kingdom from the OPEC cartel and take matters of oil pricing in their own hands. The political benefits are encapsulated in ensured and manageable market shares while keeping oil prices at a reasonable level. However, it is yet to be seen if the OPEC members will allow for these polities to interfere in their intergovernmental framework of cooperation.
The political consequences of exploring the options for new power partnerships are significant with the traditional NATO and EU allegiances under severe stress. Turkey, a prominent NATO member, currently imports approximately 50% of its crude oil from Iran, and predictions are that it will be further drawn to Russia for its oil provisions once the restrictions on Iran will go into effect. It is estimated that Russia will supply more than 60% of Turkey’s oil in addition to supplying the bulk part of its natural gas. This poses complications for the existing NATO obligations and it goes without saying that the dismantling of the Western order is a welcome development for Putin.
Although the US – Russian oil commitments are temporary shared, the allegiance is everything but inclusive. Since May 2018 we have seen increased Russian attempts for competing US influence in the Middle East by strengthening bilateral ties with individual Gulf states. Moscow is teaming up with both Saudi Arabia and Abu Dhabi through strategic partnerships aiming for a larger role in regional security arrangements. Although the Russians have divergent stances over the developments of the Syrian crisis, the GCC diplomatic crisis and the question of Iran, this doesn’t impede the pursuit of an allegiance of convenience with the major Gulf players.
The winners of the current oil dynamics seem to be the Gulf countries aligned with Saudi Arabia. Having been aware of the fact that the world has become increasingly multi polar, they have been quick to reassess the new reality on the ground. Instead of being dragged into new cold war divisions, Gulf Arabs have forged close ties with key powers, including Russia. Although Gulf countries have far greater degrees of security and economic cooperation with the United States, the Russian rapprochement is seen as alternative and complementary guaranty for their economic and political security.
Prognosis for Iraq
PM Abadi's outgoing government stands for a difficult task in juggling conflicting interests, the US and Iran demonstrating both a great extent of leverage in Iraq. The US pressure is looming on Iran- Iraq relations and Abadi has been reluctant in outlining a clear response. On the one hand Iranian enmity has severe spoiler potential, with its long arm in Iraqi affairs through economic and socio-cultural ties, religious affiliations and the pro Iran militias on Iraqi territory. On the other hand, the isolation of Iranian oil on the global market creates opportunities for a much needed economic boost.
Iraqi oil production has been suffering underperformance due to years of international sanctions and consecutive deteriorating security situations and it will welcome foreign investments returning to the country. The EU co-chaired “Conference on Iraq's Reconstruction and Development” held earlier this year in Kuwait, opened the doors for a state-backed private support system which aimed at providing guarantees for companies to take the risk of investing in Iraq, where the political instability, institutionalized corruption and mismanagement of public services has made states hesitant to invest. Another obstacle is perhaps illustrated by OPEC members’ prudence when it comes to much needed FDI’s by international consortia. Wariness for loss of national independence of the OPEC’s oil industries prevails until today. The Saudi move this week to postpone the public offering of a part of its shares in its national oil company, is perhaps a good illustration of this skepticism regarding giving up national control.
The isolation of Iran has also shuffled the regional relations between Iraq and its neighbors. In recent talks between Abadi and Erdogan they discussed pressing issues such as water scarcity, Turkey’s currency concerns, a new border crossing at Fishkhabur and the re-opening of consulates in Mosul and Basra. Turkey is on the lookout for an alternative for Iranian oil. A scenario which Abadi enabled to anticipate that he was “keen on exporting Iraqi oil from Kirkuk”.  Kirkuk on the other hand, is considered to be a disputed area and is at the center of the feud between the Kurdistan Regional Government and Baghdad.
The role of the EU on the Iraqi Chess Board
In the new strategy on Iraq, that was adopted 22 January 2018, the EU has set out its guidelines on how to support and accompany the Iraqi people for a better future in a more inclusive society. An inclusive Iraq will have to come to terms with the challenges it faces currently with regard to National unity, while simultaneously providing the conditions for IDPs and Iraqi refugees both in neighboring countries and in Europe, to return home. Europe should equally speed up its effort and mediating role in ensuring that reconstruction aid and investments are brought where they are needed. The EU should also increase incentives for investments as there is substantial potential for bilateral trade between the two economies. Investment from the EU would have a highly beneficial effect on Iraq's development while from a European perspective an expanding foot print in the area would increase European leverage in the regional arena.  In doing so, the EU has to deploy a strategy that enforces and promotes a constructive and supporting role by Iraq's neighbors as this will not only benefit Iraq, but the region at large. The OPEC is an open door for further widening cooperation however Europe remains in an inevitably weak bargaining position regarding oil related politics. Therefor it has to couple this to comprehensive approach. A stronger OPEC could mitigate US and Russian power politics, which is beneficial for the region and, not in the least, for Europe.
Iraq can play an important role on a regional chess board, full of challenges. Therefore, the Iraqi government has to determine its priorities. This includes forming a broad range, representative government while working in parallel on attracting foreign investments which could ease conditions. However, this will only work if the regional and international hegemony, such as the US and Iran, will see the benefits of cutting Iraq some slack.