A report in the Financial Times last week indicated that in recent months most of Israel's oil has come from the oil fields of Iraqi Kurdistan, part of which is piped from Kirkuk to Ceyhan in Turkey and from there sold to the international market.
The Kurdistan Regional Government (KRG) has unequivocally stated that they are not selling oil directly to Israel. The report quoted one KRG official declaring that Erbil does “not care where the oil goes once we have delivered it to the traders. Our priority is getting the cash to fund our Peshmerga forces against Daesh and to pay civil servants' salaries.”
The emphasis by that Kurdish official brings to mind the case of Iran’s oil sales to Israel all the way back in 1973. The Italian journalist Oriana Fallaci broached the question to Iran's Shah and his explanation was essentially the same as the KRG one today. The oil is simply sold on the international market and doesn’t matter whoever buys it from there, or as the Shah put it at the time, “Our oil goes everywhere: why not Israel too? And why should I care if it goes to Israel? Where it goes, it goes,”
For quite some time Israelis have been sympathetic to the Kurdish cause. In the 1960s they supported Kurdish forces in their war against the regime in Baghdad.
When the Islamic State (ISIS) terrorist organization blitzed across Iraq in mid-2014 and threatened Iraqi Kurdistan, the Kurdish president said he was once again open to the idea of a referendum for independence after the ISIS threat was eliminated.
The response of two states to that proposal was very telling. Erbil's neighbour Tehran opposed it and Israel's premier Benjamin Netanyahu openly endorsed it. Israelis are reasoning that by buying Kurdish oil off of the market and keeping a demand for it they could in turn help Erbil deal with some of its expenses.
Iraqi Kurdistan understandably wishes to remain on cordial, even friendly, terms with all of its neighbours which is one reason it would want to downplay any interaction or association with Israel given the enmity between those two countries and the fact that Tehran would likely take issue with having a neighbour on its frontier maintaining open ties with a declared enemy.
In 2012 the Iranian Kurdish journalist Mawlud Afand, whose magazine 'Israel-Kurd' promoted the fostering of greater relations between Israel and Iraq's autonomous Kurdish region, disappeared. Iran was the prime suspect and the suspected motive for doing so stems from their aversion to close and open relationship between Erbil and the State of Israel on their doorstep.
While the Israeli government may be sympathetic to the cause of Kurdish independence in Northern Iraq and in deepening their ties with Erbil one can understand why Erbil is reluctant to undertake open and friendly relations with Israel, especially if it seeks to placate its powerful immediate neighbours which could be deeply irked by such relations – remember Turkey and Israel, former allies, haven't been on very friendly terms since 2010.
Likewise as the KRG pushes its bid for independence it's doing the best it can to ensure its immediate neighbours that it will be a peaceful and non-threatening state, and that includes any relations with Israel or any other state in the region.