Analysis
An Iraqi worker operates valves in Nihran Bin Omar field north of Basra, Iraq, January 12, 2017. File photo: Nabil al-Jurani / AP
ERBIL, Kurdistan Region – If the Kurdistan Regional Government (KRG) meets its budget deal obligations and hands over its quota of 250,000 barrels per day (bpd) of oil to the Iraqi government, this concession could bode well for more complex political dialogue later.
To answer the question of whether the KRG should hand over its oil to Baghdad, one has to approach this as a math problem. For our mathematical journey, we will use the 2019 budget by way of example.
The Kurdistan Region’s share of the 2019 federal budget was 9.8 trillion dinars (roughly $8.2 billion), with a monthly average of 816 billion dinars ($684 million). Here, we have to make a distinction between the budget share and financial entitlements, as the latter are bigger than the former.
The financial entitlements of the Region include budget share, Peshmerga salaries, and loans. The Kurdistan Region has been receiving a monthly payment of 453 billion dinars, subtracted from its 816 billion monthly allotments.
According to Iraq’s 2019 budget bill, the KRG was supposed to hand over 250,000 bpd of oil to the federal government and in return receive the full 816 billion. Under the deal’s provisions, if the KRG fails to deliver the oil, a corresponding proportion of the Region’s budget is cut – a move Baghdad has taken.
If we subtract 453 billion from 816 billion, that leaves 363 billion dinars. Moreover, as per the budget bill, Baghdad was supposed to send a monthly payment of 68 billion for Peshmerga salaries, but this never arrived. Now if we add 68 billion to the 363 billion, we have 431 billion.
According to the latest data, the Kurdistan Region produces 490,000 bpd and it is expected to increase this to 500,000 bpd by 2020.
Moreover, according to a report by auditing firm Deloitte, the Kurdistan Region has been selling a barrel of oil for $54.197. If we multiply $54 by 250,000 bpd and then multiply this again by 30 days, its means the KRG makes 488 billion dinars each month when converted from USD.
We did these simple mathematical steps in order to conclude that if the Kurdistan Region refuses to hand over oil and decides to sell it independently, it will receive about 490 billion dinars monthly. If it hands the oil over to Baghdad, meanwhile, it receives less money, ranging from 425 billion to 430 billion dinars.
So why would the Region choose to lose out financially? Because there are political gains to be made later.
A bit of goodwill between Erbil and Baghdad could see the KRG take a share of the Provinces Development Fund.
It could get its share of the loans that donor countries give to Iraq. The Kurdistan Region’s share of these loans is $9 billion, yet Baghdad has never sent the money. Baghdad has also failed to send Peshmerga salaries worth 816 billion dinars this year.
The Kurdistan Region’s share of sovereign expenditure, the release of the financial entitlements of farmers, and a share of customs revenues and fees could also be on the table. Kurdish representatives in Iraqi parliament claim 35 percent of Iraq’s customs revenues are taken by armed groups, not by the central government treasury.
One complex area which may benefit from this oil settlement is the issue of the disputed territories, where both the Iraqi government and the KRG lay claim.
The Kurdistan Region’s independent oil exports started in 2013, infuriating Iraq’s then-PM Nouri al-Maliki, who in 2014 chopped the Region’s share of the federal budget from 17 percent to zero.
Now that Iraq has started sending a share of the budget, at a reduced rate of around 12.5 percent, the livelihoods and the economy of the Kurdistan Region have gradually been replenished.
If the Kurdistan Region now hands over its oil or oil revenues, this will mark the beginning of a new phase where the KRG can continue to export independently while handing over a quota to Baghdad.
This allows the Region retain its buyers and partners, who have remained in spite of difficult circumstances. The Kurdistan Region can enjoy the best of both worlds.
Unlike previous years, when all efforts were political, the best option this time is to reach a legal, technical, and then political solution, because none of these alone can guarantee a sustainable deal. Iraq’s political conditions and politicians cannot be counted on. Neither can the law or technical aspects stand alone.
What is obvious now is that the Kurdistan Region does not need to exert too much pressure on those politicians who are its allies so that they don’t become the victims of Iraqi public anger due to implementing the demands of the Kurds.
There is the belief that outgoing Prime Minister Adil Abdul-Mahdi’s openness to Kurdish demands, although normal and legal, was one of the factors that angered the political parties. That is why handing over the 250,000 bpd eases that pressure.
By Mohammed Sheikh Fatih, translation by Mohammed Rwanduzy
To answer the question of whether the KRG should hand over its oil to Baghdad, one has to approach this as a math problem. For our mathematical journey, we will use the 2019 budget by way of example.
The Kurdistan Region’s share of the 2019 federal budget was 9.8 trillion dinars (roughly $8.2 billion), with a monthly average of 816 billion dinars ($684 million). Here, we have to make a distinction between the budget share and financial entitlements, as the latter are bigger than the former.
The financial entitlements of the Region include budget share, Peshmerga salaries, and loans. The Kurdistan Region has been receiving a monthly payment of 453 billion dinars, subtracted from its 816 billion monthly allotments.
According to Iraq’s 2019 budget bill, the KRG was supposed to hand over 250,000 bpd of oil to the federal government and in return receive the full 816 billion. Under the deal’s provisions, if the KRG fails to deliver the oil, a corresponding proportion of the Region’s budget is cut – a move Baghdad has taken.
If we subtract 453 billion from 816 billion, that leaves 363 billion dinars. Moreover, as per the budget bill, Baghdad was supposed to send a monthly payment of 68 billion for Peshmerga salaries, but this never arrived. Now if we add 68 billion to the 363 billion, we have 431 billion.
According to the latest data, the Kurdistan Region produces 490,000 bpd and it is expected to increase this to 500,000 bpd by 2020.
Moreover, according to a report by auditing firm Deloitte, the Kurdistan Region has been selling a barrel of oil for $54.197. If we multiply $54 by 250,000 bpd and then multiply this again by 30 days, its means the KRG makes 488 billion dinars each month when converted from USD.
We did these simple mathematical steps in order to conclude that if the Kurdistan Region refuses to hand over oil and decides to sell it independently, it will receive about 490 billion dinars monthly. If it hands the oil over to Baghdad, meanwhile, it receives less money, ranging from 425 billion to 430 billion dinars.
So why would the Region choose to lose out financially? Because there are political gains to be made later.
A bit of goodwill between Erbil and Baghdad could see the KRG take a share of the Provinces Development Fund.
It could get its share of the loans that donor countries give to Iraq. The Kurdistan Region’s share of these loans is $9 billion, yet Baghdad has never sent the money. Baghdad has also failed to send Peshmerga salaries worth 816 billion dinars this year.
The Kurdistan Region’s share of sovereign expenditure, the release of the financial entitlements of farmers, and a share of customs revenues and fees could also be on the table. Kurdish representatives in Iraqi parliament claim 35 percent of Iraq’s customs revenues are taken by armed groups, not by the central government treasury.
One complex area which may benefit from this oil settlement is the issue of the disputed territories, where both the Iraqi government and the KRG lay claim.
The Kurdistan Region’s independent oil exports started in 2013, infuriating Iraq’s then-PM Nouri al-Maliki, who in 2014 chopped the Region’s share of the federal budget from 17 percent to zero.
Now that Iraq has started sending a share of the budget, at a reduced rate of around 12.5 percent, the livelihoods and the economy of the Kurdistan Region have gradually been replenished.
If the Kurdistan Region now hands over its oil or oil revenues, this will mark the beginning of a new phase where the KRG can continue to export independently while handing over a quota to Baghdad.
This allows the Region retain its buyers and partners, who have remained in spite of difficult circumstances. The Kurdistan Region can enjoy the best of both worlds.
Unlike previous years, when all efforts were political, the best option this time is to reach a legal, technical, and then political solution, because none of these alone can guarantee a sustainable deal. Iraq’s political conditions and politicians cannot be counted on. Neither can the law or technical aspects stand alone.
What is obvious now is that the Kurdistan Region does not need to exert too much pressure on those politicians who are its allies so that they don’t become the victims of Iraqi public anger due to implementing the demands of the Kurds.
There is the belief that outgoing Prime Minister Adil Abdul-Mahdi’s openness to Kurdish demands, although normal and legal, was one of the factors that angered the political parties. That is why handing over the 250,000 bpd eases that pressure.
By Mohammed Sheikh Fatih, translation by Mohammed Rwanduzy
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