Iran May Reach Oil Deal with Kurdistan

June 23, 2016Energyby EW News Desk Team

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Iran and the Kurdistan Regional Government (KRG) are on the verge of solidifying a deal exporting up to 250,000 a day of oil to Tehran, according to Al Jazeera. KRG is an autonomous region of Iraq, and Iranian authorities stressed that the deal will not go through without approval from Baghdad. Turkey is a major recipient of KRG oil, but has made no comment about KRG-Iranian talks.

A potential oil deal between Iran and Kurdistan has been in the works since 2014, but each side is getting closer to reaching a full-fledged deal. Negotiations entail the construction of a pipeline that would transport the oil from Kurdistan to Tehran, but the nuts and bolts of the operation remain in limbo.

Critics are concerned that a future deal would solidify Iran’s presence in the region while gaining influence over the Kurds. Moreover, others are concerned that the deal would pose a threat to Sunni and American interests. With that, Iran has more to lose if the deal falls through, as the economy recovers from sanctions and economic decline.

Iran is more integrated into the world economy, but its energy sector suffers under a lower-priced oil market and Saudi Arabia’s wide market-share. Iranian exports have declined, and the Kingdom is determined to stamp out Tehran’s energy influence in the market.

Further, Saudi Arabia will continue to stay one-step ahead of Iran as it commences diversification strategies away from the oil market. Iran is far behind and needs significant upgrades to its economy, but the deal with the Kurds will provide some measure of economic relief.

President Hassan Rouhani is struggling to get the economy on track, and Iran has yet to see the full benefits of a sanction-free economy, stoking further frustration among the public. Additionally, Rouhani’s administration contends with hardline clerics who are resistant to certain reforms, especially friendlier ties with Western powers.

Rouhani also faces resistance from Supreme Leader Ali Khamenei himself, who has the ultimate say in the direction of the country. Iran’s economy, however, needs foreign leaders and their connections to overseas investors and companies that are eager to do business in Tehran. Further, the economy needs the assistance of foreign oil companies that could enhance the economy through development and technology, notes CNN Money.

Tehran has tripled oil production since 2015 to gain the attention of foreign oil companies. For now, Tehran is stuck making deals with countries, such as Kurdistan, in order to stay afloat. Tehran needs to attract foreign investment and reduce Iran’s overreliance on the energy sector.