The Kurdistan Region has long been known for its substantial hydrocarbon reserves, making energy diplomacy a central pillar of its economic and political strategy. With the Kurdistan Regional Government estimating the region to possess 45 billion barrels of oil reserves and as much as 200 trillion cubic feet of gas reserves – each respectively about 3% of total global reserves – the Kurdistan Region’s resource wealth positions it as a pivotal energy player in the Middle East and world.
The Kurdistan Region’s use of energy diplomacy seeks to harness these resources and advance its domestic economic agenda, while helping to provide energy security for the world. Yet energy diplomacy requires that nations work together to foster geopolitical security, economic collaboration, and environmental sustainability.
Strategic diplomacy
Under the guidance of KRG Prime Minister Masrour Barzani, the Kurdistan Region has intensified efforts to diversify its energy export routes and attract foreign investment. In 2023, a landmark $5-billion investment deal with major international energy firms was signed that would double the region’s oil-production capacity from 450,000 barrels per day (bpd) to 900,000 bpd by 2025. This significant investment speaks to the region’s latent productive potential and enhances its geopolitical leverage.
The International Energy Agency defines energy security in the short and long-term. In the short term, energy security encompasses the resilience of energy infrastructure to adapt swiftly to abrupt fluctuations in supply and demand, but in the long term, it involves the alignment of energy supply with economic growth and environmental sustainability. This dual framework underpins the Kurdistan Region’s diplomatic and economic initiatives: to ensure that its energy supply chains remain robust and to adapt to global market dynamics and environmental directives.
A pivotal focus of the Kurdistan Region’s energy diplomacy has been negotiating with the Iraqi federal government to resolve the long-standing dispute over oil revenue sharing. The breakthrough agreement in 2023, which stipulated a fair revenue-sharing formula that ensured 17% of the federal oil revenue for the Kurdistan Region, paved the way for economic stability and growth. This resolution is expected to unlock further exploration and production activities, with oil-export revenues projected to rise 30% in the next two years, significantly bolstering the Kurdistan Region’s fiscal position. The Iraqis have still not adhered to the agreement, delaying the resumption of Kurdistan Region's oil exports to Turkey, halted since February 2023.
The strategic use of energy diplomacy has significant economic implications for the Kurdistan Region and Iraq. The anticipated increase in oil production and exports is projected to boost the region’s GDP by at least 8% annually over the next five years. Moreover, the energy sector’s expansion is expected to create over 20,000 new jobs by 2025, reducing unemployment and stimulating economic activity across ancillary industries.
Managing risk
The Energy Security Risk Score, as calculated by the U.S. Chamber of Commerce’s Global Energy Institute, reveals the volatile history of Iraq’s oil sector. Starting from a score of 742 in 1980, Iraq’s energy security risk peaked in 1993 at 1784, underscoring the severe challenges of sanctions following the Gulf War as well as enduring geopolitical tensions in the region. After 2003, conflict and reconstruction created further volatility until steady, gradual improvement in the 2010s. For the Kurdistan Region and Iraq, managing these risks is crucial for sustaining economic growth and ensuring reliable energy supplies domestically and internationally.
As the Kurdistan Region continues to harness its significant energy resources and strengthen its position in the global energy market, the path forward requires a multifaceted approach. To this end, the Kurdistan Region should prioritize economic diversification beyond the energy sector, investing in sectors such as agriculture, tourism, and technology, to reduce dependency on fossil fuels and build a more resilient economy. Additionally, fostering an environment that encourages entrepreneurship and innovation will be crucial, which necessitates creating policies that support small and medium-sized enterprises, streamlining regulatory frameworks, and enhancing access to finance for startups.
Moreover, the Kurdistan Region should continue to strengthen its international relationships in energy diplomacy and work to attract foreign investment across various industries. Enhancing transparency, governance, and legal frameworks will be key to building investor confidence, while education and workforce development tailored to the needs of a diversifying economy will ensure that the Kurdistan Region has the skilled labor force required to drive future growth.
Finally, the Kurdistan Region should invest in sustainable practices and renewable energy sources and technologies to address both environmental concerns and energy security. Renewable energy projects, such as solar and wind power, can provide clean alternatives that complement the region’s existing energy portfolio and stimulate new avenues for international collaboration and funding.
The Kurdistan Region’s use of energy diplomacy underscores its proactive stance in utilizing natural resources for economic gain and stability. Emphasizing diversification, the Kurdistan Region aims to broaden its economic base, while fostering an environment that attracts foreign investment and encourages innovation. With a focus on sustainable energy and international cooperation, the Kurdistan Region can navigate global energy dynamics effectively, ensure a prosperous future for its citizens, and become a significant contributor to global energy security.
Sherzad Ahmed Shahab is a PhD candidate in Financial Economics, School of Economics, Finance, and Banking, Northern University of Malaysia.
