In Stratfor 

Although the Islamic State is on the run in most of Iraq, the fight for power, autonomy and resources among Iraq’s ethnic and sectarian groups is only just beginning. This struggle will be most evident in the territories disputed by the Iraqi government based in Baghdad and the Kurdistan Regional Government (KRG) based in Arbil, most of which voted in the Kurdish independence referendum last month. The prize of the dispute is the oil-rich province of Kirkuk. After a tense four-day standoff between the Kurdish peshmerga, Iraqi Security Forces (ISF) and the pro-Baghdad Shiite-led Popular Mobilization Forces, Iraqi Prime Minister Haider al-Abadi ordered the ISF, the Federal Police and the Iraqi Counter Terrorism Service forces to move into the city of Kirkukearly Oct. 16 to secure federal bases and installations in the area.

Prior to the Islamic State’s rapid advance across western and northern Iraq in 2014, Kirkuk province and its infrastructure was largely controlled and administered by Iraq’s federal government. The Iraqi army provided much of the province’s security while Baghdad’s institutions — such as the North Oil Company and the North Gas Company — ran and controlled Kirkuk’s oil and natural gas industry, home to about 300,000 barrels per day of production. But as the Iraqi army collapsed in Mosul in the north and Hawija in southwestern Kirkuk province, it withdrew from the city as the Islamic State closed in. The militant group even briefly captured the K1 military base outside the city of Kirkuk. Kurdish peshmerga fighters forced Islamic State fighters from K1 military base and many of the surrounding oil fields and were able to prevent them from taking control of the city as well. The Kurds took advantage of the situation by gaining control of the city, control that Baghdad doesn’t want to give up over territory that it considers rightfully under central government control. Evidently, the Iraqi military advance is geared at securing the oil and naturl gas infrastructure as well as the K1 military base.

The KRG will not want to give up its valuable leverage, but that doesn’t mean it wants to start a war either. Two Kurdish parties — the Kurdistan Democratic Party (KDP) and Patriotic Union of Kurdistan (PUK) — on Oct. 15 issued a statement calling for “an unconditional, responsible and constructive dialogue” with Baghdad over the referendum results. There were even rumors on social media suggesting that both parties agreed to certain concessions they would afford Baghdad in negotiations on Kirkuk, such as removing the Kirkuk governor, freezing the referendum results for one year, and joint ISF and peshmerga control of the K1 military base, along with other installations in Kirkuk. There may be a deal in the works between Baghdad and the KRG — or at least elements of the Kurdish government more willing to negotiate with Baghdad — to reduce tension by allowing the ISF to control some of the facilities in the region. Al-Abadi’s recent announcements called for Iraqi forces to work with the peshmerga to secure the installations. And KRG President Massoud Barzani knows that conflict will undercut his Western support, leading him to order the peshmerga not to initiate any conflict but to respond only if Iraqi forces fire first.

While the broader dispute over Kirkuk’s status is between Baghdad and Arbil, the struggle for Kirkuk is much more complicated. Kirkuk is a multi-ethnic city of Arabs, Kurds, Turkmen and other groups. Many of Kirkuk’s non-Kurdish populations did not support the referendum. This is critical because the fight against the Islamic State in Hawija was led in part by Iraq’s Popular Mobilization Forces. Although these forces are technically under the control of al-Abadi, they are a conglomeration of dozens of militias, some of which are closer to Iran and al-Abadi’s political rivals. In the region around Kirkuk, two of the more powerful militias are Turkmen militias that are linked to the Iran-backed Badr Organization. There have already been sporadic skirmishes between militias and the PUK peshmerga, most recently in the past week in Tuz Khurmatu, about 50 kilometers (30 miles) outside of Kirkuk. Al-Abadi has so far ordered only the Iraqi military and police force to move into the city — not the Popular Mobilization Forces. It is possible that by moving in more trusted forces first, al-Abadi is seeking to prevent a real conflict from erupting. Additionally, keeping the Popular Mobilization Forces out of Kirkuk means they are likely to be mobilized to Sunni-populated Anbar province instead, where the Islamic State remains. This raises another set of problems for Baghdad.

What remains to be seen over the next few days is how the various moves will play out. Tension in the region is high and the movement of forces comes with risk. There have already been unconfirmed reports that the Kurdish peshmerga have reinforced the city, sending in the elite Heza Rashaka unit, which was used to secure control of oil installations in March. There are been reports of the peshmerga destroying four Iraqi Humvee vehicles. Various KRG officials also said that Popular Mobilization Forces have been involved in the operation, despite al-Abadi’s conflicting statements. At least seven Popular Mobilization Forces militiamen have allegedly been killed in Kirkuk’s Hay al-Sanna. As Stratfor expected, the next phase of Iraq’s conflict is underway.