Once again eyes are on oil and its potential impact on the changing Middle East scene. This month could send a significant signal depending on what emerges out from Iraq’s semi-autonomous Kurdistan region, or to be more specific how Turkey will behave vis-a-vis its relationship with both Baghdad, the seat of the central Iraqi authority or Erbil, the capital of the Kurds.

In addition to securing the right to export their oil through the Iraqi pipeline that ends in Turkey, Erbil is believed to have reached an agreement with Ankara to build its own pipeline that ends in the busy and crowded Ceyhan terminal.

An understanding is said to have been reached during a visit by Kurdistan Prime Minister Nechirvan Barazani and his Turkish counterpart Recep Erdogan late last month, but it was decided in the end not to forge ahead and sign the deal that should have come into effect this month.

Turkey is clearly weighing its options as it does not want to lose Baghdad cooperation given the changes engulfing the region.

Moreover, it hopes to reach some kind of an understanding with Nouri Al-Maliki, when he visits Ankara sometime this month as has been reported.

Erdogan is also considering requests from Washington not to forge ahead with the deal before settling the issue with Baghdad first.

Baghdad is adamantly against a separate deal between Ankara and Erbil.

Its first concern is that oil is a federal issue that ought to be settled in Baghdad and by the central authority.

Accordingly, it insists that all receipts of oil sales should be deposited in the treasury in Baghdad and that Erbil like other regions can get its due share of 17 percent later.

Baghdad does not seem to be happy with Ankara’s proposal to deposit the receipts in an escrow account in Turkish banks till a settlement is agreed upon.

Years of political instability in Baghdad have however led to actual paralysis to the extent that Baghdad failed till today in passing a new oil law given different drafts being in circulation and were subject to political maneuvering.

That paralysis led the foreign companies to give up on the central government and discarded Baghdad threats to bar any foreign company working in Kurdistan without Baghdad consent.

Over time an expanded list of companies led by American ones seem to have opted to put their hands into that of Erbil and forged ahead with deal to the extent that some speaking about Kurdistan as being the new hub of oil activity in the region.

In fact, the dispute between Baghdad and Erbil exceeds the tug of war between the two competing political groups; Baghdad in fact is under pressure from Iraqi oil experts, who think that Kurdistan moves could endanger prospects for the Iraqi oil industry.

They point to the fact that Erbil adopts the exploration, production sharing agreements model (EPSA), but they add that such model fits well where there is high risk. In the case of Kurdistan there are known discoveries that are only awaiting development. In other words that means foreign companies are netting high income that should not be theirs.

Moreover, with this EPSA model, foreign companies will get a percentage share that ranges between 25-35 percent, while the service contracts offered by Baghdad does not allow foreign get more than 15-18 percent. That tilts the balance to favor Erbil and has been demonstrated in a number of leading foreign companies opting to work in Kurdistan.

High on the list are the names of big players in the industry like Exxon Mobil, Chevron and Total.

When Exxon Mobil signed with Erbil, Al-Maliki wrote to US President Barack Obama denouncing that move and explaining how it could endanger Iraqi oil industry. But there was no result.

With estimated oil reserves of 45 billion barrels, Kurdistan stands a good chance to raise its current production to 300,000 barrels per day (bpd) and increase it later to one million barrels or more.

The only major limitation is the export channels. And that is where Turkey hopes to play a crucial role.

Though it is aiming at benefiting financially and reduces its mammoth energy import bill, but more important, it is trying to advance the concept of building relations on strong economic mutual interest.

However, like Iraq, Turkey is also afraid of raising its own Kurds expectations for more independence.