Iraqi Political Risk

New York Energy Forum

Stephen Rodriguez28 April 2010

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Framing Input Model Output

ALTERNATIVE FUTURES

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• During the 2008 US Presidential Campaign, there was a major debate on the timetable and scope of the US drawdown from Iraq

• Three issues analyzed: Central Iraqi govt cohesion, Kurdish independence, and the power of al-Sadr

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Iraqi Study Approach

Framing Input Model Output

ALTERNATIVE FUTURES

QUESTION: What are the implications for Iraqi political stability should the United States commit to a large-scale withdrawal?

• Data obtained July-October 2008

• Five SMEs interviewed in Washington DC to include former National Intelligence Officers, senior military analysts, and NGO personnel.

• Data gathered on approximately 115 stakeholders

• Analysis informs decisions ranging from military force structure to future investment targets

• Forecasts valid out to 12-18 months

• Results presented to Oil & Money Conference (Oct 2008)

Completely opposed to Central Iraqi Government

Neutral toward Central Iraqi Government Increasingly PositiveIncreasingly Negative

Completely supportive of Central Iraqi Government

Kurds Shia Sunnis US Regional nations

Energy Companies

Iran European nations

Forecasted Positions Given US Military Drawdown: Support for Central Iraqi Gov’t

Forecasted Positions Given Current Troop Level: Support for Central Iraqi Gov’t

Implications of a US Drawdown in Iraq

A growing consensus is expected among Shia elites, regional powers, and the Iraqi military in support of a central gov’t.

Kurds, Sunnis, and most Iranians will remain neutral at best.

A tighter consensus will form among Shia and US stakeholders in support of a slightly weaker central gov’t.

However, the Kurds will become increasingly opposed.

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Implications of a US Drawdown in IraqIndependent

Kurdish Region

Fully integrated

Full Autonomy(Expanded

geographic space)Cultural

autonomyInformal

AutonomyFull

AutonomyDe facto

recognition

Kurds Shia Sunnis US Regional nations

Energy Companies

Iran Turkey

Forecasted Positions Given US Military Drawdown: Kurdish Independence

Forecasted Positions Given Current Troop Level: Kurdish Independence

The current level of Kurdish autonomy is expected to remain constant.

While there is a sustained risk of violence, this is minimized by the US military presence.

Without a credible US guarantor of security, the Kurds are expected to be more willing to use military force to increase their independence.

There is now a significant risk of conflict with Turkey and Shia/Sunni rivals within Iraq.

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Implications of a US Drawdown in Iraq

Kurds Shia Sunnis US Regional nations

Energy Companies

Iran European nations

Completely opposed to Sadr Neutral toward Sadr Increasingly PositiveIncreasingly Negative

Completely supportive of Sadr

Forecasted Positions Given US Military Drawdown: Support for Muqtada al-Sadr

Forecasted Positions Given Current Troop Level: Support for Muqtada al-Sadr

Support for Sadr and JAM-OMS will remain fractious, driving intra-Shia competition.

Sadr and JAM-OMS are expected to become more politically isolated, yet cohesive as a group.

This indicates a likely escalation of intra-Shia and sectarian violence.

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Longitudinal Effects

• Should Iraqi oil production start in earnest (e.g. > 8mil bpd), there are a number of serious risks that need to be examined:

• Potential drivers of future conflict along pipeline routes

• Shifting balance of power in the Persian Gulf and the likelihood of a breakdown in the non-proliferation regime

• A regional power rivalry between Iraq and Saudi Arabia

• The renewal of large-scale conventional war between Iraq and Iran as Baghdad rises

• Escalation of tensions between the Kurdish Regional Government (flush with oil cash) and Turkey

• Water wars amidst massive industrialization and population expansion along the Euphrates & Tigris Rivers

• The collapse of the OPEC cartel and a shift towards regional energy cartels (oil, natural gas, LNG, coal)

• Fragmentation of Iraq along sectarian lines undermines viability of Iraqi production

Backup Slides

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Notes on Findings• Steady State Forecast (Central Government)

• Ammar al-Hakim (ISCI) is expected to be critical in engaging multilateral institutions such as the UN, IMF, World Bank, and the EU.

• This power is likely to emanate from his UN supported foundation and favorable relations with the West.

• The Dawa Party is likely to remain the primary driver of popular Shia support.

• Their influence also extends to Iranian elites including Ahmadinejad, Council of Guardians, and the Majlis.

• Jalal Talabani (PUK) and Barham Salih (PUK) will retain considerable leverage over smaller “Wildcat” and independent oil companies.

• They will also succeed in generating support from Shia cleric, Ayatollah Yaqubi and his various Fadilah factions.

• Troop Drawdown (Central Government)

• As US forces dwindle, Qubad Talabani is expected to become increasingly influential over Sunni elites who are critical to the political process.

• These include Ali Baban, Mahmud al-Mashhadani, Adnan al-Dulaimi, and Yunis Ahmed.

• Muqtada al-Sadr will be essential in maintaining the support of the GCC nations in favor of Baghdad as well as large energy companies.

• He is also the only one expected to retain any leverage over Russia (Lukoil) or China (CNPC).

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Notes on Findings• Steady State Forecast (Kurdish Independence) Relatively static

• Nechervan Mustafa (PUK) and Adnan Mufti (PUK) are likely to be successful in engaging the Sunni tribal leadership in al Anbar, the Association of Muslim Scholars, and its chairman Harith al-Dari.

• Analysis indicates that PUK and KDP elites hold considerable unrealized leverage over Turkey, Muqtada al-Sadr, and the Iraqi Finance Ministry in terms of gaining support for Kurdish autonomy.

• Troop Drawdown (Kurdish Independence) Much more fluid

• Should American forces continue to dwindle, Barham Salih (PUK) is expected to become effective at driving support for Kurdish autonomy amongst Sunni and Shia tribes.

• Meanwhile Iraqi FM, Hoshiyar Zebari (KDP) is likely to be successful in maintaining Iranian neutrality.

• Jalal Talabani (PUK) is assessed to be one of the most influential stakeholders in gaining support from major oil companies as well as the Saudis.

• He is also likely to soften opposition to Kurdish independence from Iran military / political institutions, Ayatollah Sistani, and the Badr organization.

• Over time, Muqtada al-Sadr and his JAM-OMS organization are likely to become strongly supportive of Kurdish autonomy as a result of pressure from Mustafa and Mufti.

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Notes on Findings• Steady State Forecast (Sadr)

• Grand Ayatollah al-Sistani is expected to be the primary driver in tempering Iranian senior leadership support for al-Sadr.

• He is also likely to be an increasingly important conduit for Sunni elites and energy companies when attempting to corral the support of disparate Shia factions including al-Sadr.

• Jalal Talabani (PUK) is assessed to have the greatest potential for driving Kurdish and international opposition to Sadr.

• He is also essential in generating consensus amongst important Sunnis including the Iraqi Islamic Party, Tarek al-Hashemi (IIP), and Saleh al-Mutlaq (IFND).

• While his influence over global energy companies is not as pronounced on this issue, modeling indicates that he will be capable of splintering the Iraqi oil unions from Sadr.

• Troop Drawdown (Sadr)

• In the event that the US security guarantee is removed, Sadr’s political base (poor, uneducated Shia population) becomes increasing influential.

• Their power is likely to moderate opposition from most Kurdish and Sunni political elites. They also have leverage over the energy companies in the south through the latent potential for violence.

• However, Jalal Talabani (PUK) is again likely to act as an effective counter-weight to Sadr.

• This opposition is likely to take the shape of influencing energy companies and the GCC who now increasingly rely upon him in the absence of American security.

• Nouri al-Maliki, as Prime Minister, is expected to become increasing important in strengthening opposition to Sadr amongst regional and international stakeholder

Validation

Sentia Forecast Actual Event Reference

SOUTH AMERICA: Bolivia would nationalize hydrocarbon infrastructure below ground in 3-4 months. (Feb 06)

Bolivia seizes all hydrocarbon assets under ground. (May 06)

http://www.cfr.org/publication/10682/

SOUTH AMERICA: The legal dispute between ExxonMobil and Venezuela will be protracted should European courts “un-freeze” PDVSA assets. (March 08)

A British judge threw out the injunction against Venezuela, thus intensifying the legal conflict over the nationalization of the Cerro Negro oil project. (May 08)

http://www.reuters.com/article/reutersEdge/idUSN1932078820080319

EUROPE: Russia will seek to expand its control of natural gas flows into Ukraine as a foreign policy tool over the next 12-18 months (April 08)

Russia-Ukraine gas price negotiations complicated by the Kremlin’s desire to reign in Kiev’s support for Georgia. (Oct 08)

http://www.alertnet.org/thenews/newsdesk/L2633242.htm

AFRICA: MEND insurgent attacks against oil infrastructure in Nigeria are expected to continue unabated over the next 8-12 months. Attacks are also expected to spread from Bayelsa State to surrounding provinces. (May 08)

MEND continues to wage conflict against oil facilities while the government is in disarray. Rebels launch broad, new offensive in Rivers State (Oct 08)

http://newsweek.washingtonpost.com/postglobal/energywire/2008/09/oil_blues_in_the_niger_delta.html

MIDDLE EAST: The US and Iran are likely to continue to engage in indirect conflict over the next 6-12 months. However it is equally unlikely to deteriorate into open armed conflict. (Nov 07)

Tensions remain high due to Iran’s support to anti-US forces in Iraq and expanding nuclear program. However, direct conflict remains unlikely and undesired. (May 08)

http://www.cbsnews.com/stories/2008/04/29/eveningnews/main4056941.shtml

AFRICA: A peace agreement on Darfur could be reached if the US dispatched a senior level negotiator within 6 months. However, this agreement would likely cause splintering amongst the various Darfur rebel movements. (Mar 06)

Senior State Dept official, Robert Zoellick, was sent to negotiate a settlement, which resulted in the successful signing of the “Darfur Peace Accord”. Unfortunately, this unraveled over time due to rebel discord (May 06)

http://www.globalsecurity.org/military/library/news/2006/05/mil-060506-usia01.htm

No Interventionism

Some Interventionism

Significant Interventionism

Moderate Interventionism

Gro

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Wei

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Infl

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Russians Western Energy Companies Ukrainians Belarus

Transcaucasia CountriesEuropean Powers Kazakhstan

Russian Politicization of Natural Resources

Key Russian bureaucrats are expected to pursue increased control over natural gas flows into Ukraine as a foreign policy tool in the next 12-18 months.

Gazprom will be instrumental in driving Russian elites’ opinion on the issue.

Forecasted Positions

Ukrainian politicians will remain deeply split in the face of Russian solidarity.

Likewise, global energy, the US, and Europe are likely remain undecided on how to confront Russia.

• Simulations indicate that Russian elites are sensitive to political or economic change in the region.

• Events such as the development of an alternative pipeline to the south or a change in Ukraine’s administration would cause Russian elites to moderate their desire to pressure Kiev via manipulation of natural gas flows.

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Nigerian Oil Violence

• Nigerian political and military elites, US stakeholders, and energy firms clearly oppose violence in the Niger Delta. However the governors of Delta, Rivers, Bayelsa, and Akwa Ibom states are expected to undermine national-level and international efforts to end violence against oil infrastructure.

• Simulations indicate that a dramatic decrease in the price of oil will enable global energy firms within Nigeria to compel corrupt, Delta region governors to fully engage in dialogue with Abuja.

Fully and completely opposed to the use of violence

Neutral toward the use of violence

Fully and completely supportive of the use of violence

Nigerian Stakeholders Shell Stakeholders US Stakeholders Chevron Stakeholders

RussiaChina Exxon Stakeholders

Over the next 8-12 months, there will be very little progress in mitigating violence against oil facilities pursued by MEND and other militants.

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