On January 15 in London, the Iraqi government and British Petroleum signed a long-awaited comprehensive energy agreement aimed at developing the northern oil fields of Kirkuk, which are estimated to contain proven reserves exceeding 9 billion barrels of oil. The deal marked a historic return for BP to Kirkuk, the oil-rich province where in 1927 the company, then the Anglo-Persian Oil Company, made its first oil discovery. The discovery not only influenced Iraq’s political history and economic development, but it has also exacerbated the conflict between the Kurds and successive Iraqi governments over Kirkuk. This BP deal threatens to aggravate a century-old source of contention between Baghdad and Erbil.

The final technical and commercial details of the BP deal have yet to be disclosed, though reports suggest that it may be a $25 billion investment, making it the second-biggest energy investment after TotalEnergies’s $27 billion megadeal signed in 2023. The agreement includes the development of Kirkuk’s Baba and Avana Domes as well as three adjacent fields: Bai Hassan, Jambur, and Khabbaz. The rehabilitation of existing facilities, alongside the construction of new infrastructure, such as gas expansion projects and drilling to stabilize production and reverse decline in the Kirkuk fields, is also part of the deal.

Although the 2018 letter of intent between the Iraqi Oil Ministry and BP included expanding production at the Khurmala Dome, controlled by the Kurdistan Regional Government and operated by the KAR Group since 2007, the status of the oil field in the deal remains unclear. Located about 22 miles southwest of Erbil, the Khurmala Dome produces about 150,000 barrels per day making it a vital revenue source for the KRG’s struggling economy amid budget cuts from Baghdad. If BP’s new deal with Baghdad includes Khurmala, the company risks becoming embroiled in Iraq’s volatile dispute over resource control. Such a move could exacerbate tensions between the KRG and the federal government.

The BP project aims to stabilize and boost production at these strategically important oil fields. It will increase oil production from the current 300,000 b/d to 750,000 b/d, with a longer-term target of reaching 1 million b/d from Kirkuk fields. Such a boost in revenue streams will be important to support Iraq’s bloated public sector and fund key development initiatives. Additionally, the deal outlines plans to construct power plants that will generate electricity by utilizing associated gas from the oil fields to meet local energy needs. This electricity could lessen dependence on gas imports from Iran in the future and help Iraq to reach a key environmental goal: the elimination of gas flaring by 2028.

On the surface, this agreement appears to be a major victory for Iraq, offering necessary cash for its struggling economy. However, the deal also risks exacerbating the long-standing conflict between the Kurdistan Regional Government in Erbil and the central Iraqi government in Baghdad, especially if the deal is implemented without consultation with Erbil. Kirkuk has always been a flashpoint for ethnic and political conflict, with both the Kurds and Iraq’s central government asserting claims to its sovereignty and resources.

Prior to Iraqi Prime Minister Mohammed al-Sudani’s trip to London, his office had notified the KRG about the impending signing of the Kirkuk deal with BP. However, at the same time, Baghdad advised BP to engage in talks with the KRG only after the deal has been finalized.

Given Kirkuk’s legal status and the Kurdish majority in the province, the KRG asserted its right to have a significant say in any major long-term energy agreements concerning the province. The KRG’s demand is clear: a seat at the table with BP and the Iraqi Ministry of Oil.

The Kurdish population is apprehensive about energy deals in Kirkuk, particularly with BP, because of the experience of the discovery of oil by BP’s forebearer in newly British-founded Iraq. The extraction and commercialization of oil from Kirkuk in 1934 did not just stifle the hope of Kurdish autonomy, it laid the foundation for a century of oppression. The revenue generated by this oil wealth empowered successive Iraqi governments to systematically suppress the Kurdish population, using the resources to fuel a war on the Kurds. What began as a geopolitical and economic calculation by the British and the Anglo-Persian Petroleum Company reverberated through generations, trapping the Kurds in a cycle of marginalization and conflict.

The new BP deal also repeats a dangerous precedent: a major foreign company entering the heart of a disputed province and aligning with one side engaged in a long-standing political and legal conflict. The interests of foreign corporations, particularly in resource-rich regions, have often had long-term ramifications that far exceeded the immediate economic benefits as has been the case in Aceh in Indonesia and the Biafra region in Nigeria, for example. BP’s decision to sign the deal without securing the consent of the KRG could deepen the divide between the central government and the Kurds, igniting tensions that could contribute to a fresh wave of conflict.

In the past, the fate of major energy projects in Kirkuk was determined primarily by the exercise of power rather than through legal or political frameworks. BP’s path to the new deal in Kirkuk has been a long endeavor, with negotiations dating back to 2009. Progress has been consistently hampered by a multitude of factors, primarily the deeply strained political relationship between the KRG and Baghdad. Tensions were exacerbated by several other key factors: Kurdish political and military control of Kirkuk until October 2017, instability and security challenges in Kirkuk province, and the overall volatile environment for any major development projects on the national level.

Kurdish dominance in the region hindered past efforts to reach a deal with BP. Now, Baghdad is asserting its power to finalize a deal. However, if this deal – concerning Iraq’s most contested province – is not handled carefully, it could have substantial detrimental consequences for political stability and economic development.

A BP spokesperson said the agreement is not yet finalized, giving Baghdad the opportunity to meaningfully include the KRG, even if not as a direct partner. Including all relevant stakeholders will help to ensure the success of this mega-development project, protect it from future political or security upheavals, and contribute to the stability of Iraq as a whole.