Kurdish Independence Could Deal A Major Blow To Oil Markets

The future stability of OPEC's second-largest oil and gas producer could be decided by the end of 2017. Unrest is growing in Iraq as the Kurdish referendum grows nearer. Soon, the Iraq that we have known since the end of WWII could be drawing new borders. At the same time, the conflict between the Shi'a (supported by Iran) and the Sunni (Saudi-UAE) could be heating up again.

Regional actors and political friction have added fuel to the fire, in the first signs that the strong Shi'a majority is experiencing internal instability. One of the main leaders of the region's Shi'a has broken ranks in Iran's Shi'a led government factions just as Sunni power players in the Arab Gulf are expecting a collapse of the Shi'a power triangle of Iran-Iraq-Syria.

The unexpected visit of Shi'ite cleric and power broker Muqtada Al Sadr to Saudi Arabia and the UAE has stirred unrest in the region. On the 30th of July, Al Sadr and Saudi crown prince Mohammed Bin Salman met in Jeddah, discussing possible cooperation between the Sunni Wahhabi Kingdom and Shi'a led Iraq.

Al Sadr's meeting with MBS is significant, as it could lead to a change in Iraq's pro-Iran political military position. This would signal a major success for the anti-Iran GCC front, but it would put severe pressure on Tehran in its quest to construct a Shi'a land bridge between Iran, Iraq, Syria, and Lebanon.

A political thaw between Baghdad and Riyadh has occurred in recent months with a number of high-ranking ministers and officials meeting regularly. Still, official diplomatic relations remain very cold.

Al Sadr's political maneuver has created a tense relationship with Tehran. Iranian media have even accused Al Sadr of treason.

The Iraqi leader has shrugged off the criticism, however, even upping the pressure in a recent visit to Abu Dhabi, where he met with Crown Price Mohammed bin Zayan Al Nahyan. MBZ and MBS are close allies, both of whom hold the same anti-Iranian views and share a similar vision for the region.

The move by Al Sadr, a Shi'ite cleric and leader of a strong Shi'a militia, is significant. The once cohesive Shi'a military and political front in Iraq has splintered, adding to the already significant pressure on current Prime Minister Al Abadi, whose waning power could be threatened further if regional players up the ante.

For Tehran, the situation is troubling. Until July, Iran's influence on the region was growing. The gap that the U.S. has created has given Tehran a free card to assume full power in the vast territory. If not addressed, Iran could build a Shi'a regional super power that could further destabilize the MENA region and even impact Turkey in the years to come. The main backbone of this power would stem from the intricate religious culture and a military link between Tehran's hardliners and the Shi'a majority in Iraq.

This strategy could now be at risk if Al Sadr maintains his current commitment to de-escalating tensions with the Sunni GCC countries. As one analyst stated, "Tehran was pulling all the strings among the Shiites (of Iraq) but it seems that several strings are now beyond its grasp, like that of the Sadrists".

Al Sadr has skillfully used the openings created in the previous months by Iraqi Prime Minister Haider Al Abadi as a follow up to Saudi foreign minister Adel Al Jubeir's visit to Baghdad. However, the GCC leaders could be overplaying their cards as the Shi'a power struggle in Iraq has not yet presented a clear winner. Tehran could still attempt to pre-emptively remove Al Abadi from power, replacing him with the likes of Al Maliki.

Several Iraqi analysts are warning that Iran is preparing for a showdown, supported by money, weapons, and a strong media campaign. Iranian influence in Iraq should not be underestimated, as the current anti-Daesh military campaign is largely led by Iranians or Iranian trained personnel. The economic interlinkage is also immense, especially in the Shi'a majority areas of the country.

A potential military showdown could be expected if the thaw between Baghdad and Saudi Arabia removes even more obstacles the coming months. The opening of the bilateral borders, which were closed since 1990, is a sign of this. Increased Saudi investments in Iraq could lead to not only an economic revival but also stir up renewed tensions at the same time. The pro-GCC power players in Iraq, such as the Kurds, Sunni minority groups or even Al Sadr, will have to remain very cautious. A total removal of armed groups or militias is needed, but even Al Sadr, known as a firebrand, has not yet even addressed the end of the Hashed Al Sha'abi.

Iranian news site Tasnim, known for its links to Iranian Supreme Leader Ayatollah Ali Khamenei, has openly accused Al Sadr of betrayal. The news site also stated that the visit is a betrayal of the Yemeni people who have been fighting the Saudis for more than a year. Tasnim also accused Saudi Arabia of taking advantage of the Sadrist movement and seeking influence gateways in Iraq.

Iraq is also facing possible turmoil due to the pro-secession vote in Kurdistan. The call for independence by Iraqi Kurdish parties is not surprising, but it is only the first step further towards the hard-sought-after independence. The majority of Iraqis, however, are against the independence of the Kurds, as it could lead to further instability in the rest of the country.Related: Two Countries Could Push Oil Over $50

Still, the September 25 non-binding referendum could be a watershed in Kurdish and Iraqi politics. Until now, the Kurdish region has been one of the most tranquil regions in Iraq, when not taking into account the harsh military operations against Daesh around Mosul. The semi-autonomous Kurdish nation has also established trade and economic relations with Turkey and Iran.

In the Iraqi constitution, supported by the U.S. after 2003, Kurdistan has received a semi-autonomous status. As in the whole region, political powers are tribe or family related, resulting in power politics and corruption. The Barzani-Talabani rule is no different from other parts in the Middle East. Kurdish politics are ruled by the two former Peshmerga leaders, now dividing the Kurdish arena between themselves. Since October 2015, the Kurdish Parliament has not met while Kurdish president Masoud Barzani has overstayed his tenure by four years. The economic situation is slightly depressed, largely due to declining oil and gas revenues, a conflict with the Baghdad government about financial disbursements of revenues and a rising debt portfolio.

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