In Geopolitics This Week
International Court Rules Against Kurdistan's Oil Exports, The Global Currency Landscape is Shifting, Turkey Ratifies Finland’s NATO Membership, and other stories.
International Court Rules Against Kurdistan's Oil Exports
The International Court of Arbitration has ruled against Iraq's Kurdistan Regional Government (KRG) regarding its independent export of oil. The court has decided that the KRG cannot export oil through a pipeline system to the port of Ceyhan without Baghdad's approval, negatively impacting the KRG's oil industry. This ruling will give Baghdad more control over the KRG's oil and gas sector, forcing the KRG to make concessions in a settlement that is likely to favour Iraq.
The oil export issue has been a long-standing point of contention between companies in the Kurdistan Region and Baghdad. The dispute escalated in February 2022 when the Iraqi Supreme Court declared the KRG's 2007 oil and gas law unconstitutional, to which the KRG rejected the ruling and began discussions with the federal government. The recent halt in oil exports has already had significant repercussions for international oil companies in the region, including DNO, Forza Petroleum, and Genel Energy, which have already ceased operations. HKN Energy has also given notice that it will shut down operations if no resolution is reached, but may continue if it finds alternative arrangements such as selling to local refineries in Kurdistan.
The KRG's budget relies on oil sales, which accounted for nearly 90% of its total revenues in 2021. If the KRG is unable to export oil, it will struggle to meet its financial obligations, including paying salaries to its civil servants and funding infrastructure projects. The central Iraqi government is also heavily reliant on oil revenues, which accounted for nearly 90% of its total revenue in 2021. Any disruption in oil exports from the KRG will lead to a decline in Iraq's overall oil exports, thereby hurting the central government's budget. The central government has already been facing financial difficulties due to low oil prices, and a prolonged halt in oil exports from the KRG will only exacerbate the situation.
Iraqi and Turkish officials are set to hold talks to discuss a new agreement for Iraqi oil exports through Turkey following the tribunal's penalty against Turkey for allowing Kurdish oil exports without Baghdad's approval. According to Asem Jihad, a spokesperson for the Iraqi Oil Ministry, an Iraqi delegation will travel to Ankara for negotiations soon. He highlighted that neither Turkey nor the Kurdistan Regional Government (KRG) rejected the arbitration ruling, which he believes is necessary to pave the way for a “fresh start” in oil transfers.
If the long-term pause in oil exports is not resolved, it could have a profound impact on the economies of both the central Iraqi government and the KRG. Both are heavily dependent on oil sales for the majority of their revenue. This ruling and the halt in oil exports are likely to have wider geopolitical implications as well. They could affect Iraq's efforts to suppress separatism and federalism across all its regions. The situation in Iraq is likely to remain tense as the KRG is forced to make concessions to Baghdad, and the federal government attempts to exert greater control over the region's oil and gas sector.
The Global Currency Landscape is Shifting
Recent developments have shown a trend towards a shift in global currency dominance. Russia and China have been displaying diplomatic unity, with Vladimir Putin pledging to adopt the renminbi for payments between Russia and countries of Asia, Africa, and Latin America, in a bid to displace the dollar. This comes as Moscow is already increasingly using the renminbi for its trade with China and embracing it in its central bank reserves to reduce its exposure to US assets. A multipolar currency world could emerge in the coming years, which could come as a shock to American policymakers given how much external financing the US needs.
In India, the government has unveiled a new Foreign Trade Policy (FTP) 2023, with the aim of increasing the country's exports to $2 trillion by 2030. One of the key changes introduced in the FTP 2023 is the promotion of the internationalization of the Indian rupee. This can reduce the country's dependence on foreign currencies like the US dollar, which can be subject to fluctuations and volatility in the global currency market. Moreover, promoting the internationalization of the rupee can also boost India's position in the global financial system, making it a more attractive destination for foreign investment. This, in turn, can lead to increased economic growth and job creation in the country.
Elsewhere, China has conducted the first ever yuan-settled energy deal with the United Arab Emirates involving some 65,000 tons of Emirati liquified natural gas. This transaction was conducted through the Shanghai Petroleum and Natural Gas Exchange by China National Offshore Oil Corporation and France's TotalEnergies. China has been in discussions with countries in the Middle East and North Africa about conducting trade using the yuan, and several countries in the region have expressed interest in this approach. The move towards yuan-settled trade is partly driven by a shortage of US dollars, as well as a desire to improve trade relationships with China.
With the Indian government's efforts to promote exports and the Chinese push for yuan-settled trade, these currencies could become increasingly important in international trade. These developments indicate a trend towards a shift in global currency dominance, away from the US dollar towards alternative currencies such as the renminbi and the Indian rupee. The US dollar has historically been a key tool of US foreign policy, allowing the US to exert influence over other countries by controlling access to the global financial system. If the US loses its currency dominance, this could weaken its ability to influence other countries and potentially lead to a realignment of global power dynamics.
Turkey Ratifies Finland’s NATO Membership
Turkey's National Assembly has ratified Finland's accession to NATO, which is expected to officially take place on July 11th. Finland's NATO membership will mark a significant change in Europe's security architecture and a major strategic setback for Russia in its war in Ukraine. The move will result in NATO weapons being stationed in Finland's high north, increasing the alliance's presence and altering the security calculus of Moscow.
For NATO, Finland's membership will bring sizable and prepared military forces into the alliance. However, NATO will not gain unrestricted manoeuvrability in the region, as Russia maintains a significant presence from its Kaliningrad exclave, its Baltic coast, and Belarus. Despite Ankara's support for Finland's accession to NATO, it has levelled the same charges at neighbouring Sweden, which Ankara says has not yet gone far enough to assuage Turkey's security concerns.
The relationship between Finland and Russia dates back to the 18th century when Russia conquered Finland, and has been marked by tension and conflict, particularly during World War II. In the post-war period, Finland pursued a policy of neutrality before pursuing closer relations with NATO after the collapse of the Soviet Union. Finland's decision to join NATO represents a significant shift in the balance of power between Russia and NATO, with potential implications for regional security, stability, and the broader strategic balance in Europe.
Russia is likely to view Finland's NATO membership as a direct threat to its national security and may take measures to counterbalance it, potentially leading to an escalation of tensions and an increase in military activity across the region. It remains to be seen how Russia will respond, but Finland's NATO membership is likely to pose a significant strategic challenge for Russia as NATO military assets will now be able to threaten Russia’s Northern Fleet headquartered in Severomorsk. The global geopolitical landscape continues to shift, and the implications of Finland's NATO accession are yet to be fully understood.