KRG Oil Revenues Cannot Replace Iraqi Budget, Expert Says

ERBIL, Kurdistan – Even in the best of circumstances, the Kurdistan Region’s total revenues from oil exports would be less than half of its entitled share of the Iraqi budget, an energy expert said.

Responding to a statement by Iraqi deputy prime minister for energy, Hussein Shahristani, who said that Erbil could keep revenues from its controversial oil exports in lieu of what it receives from the national budget, Dr. Qaiwan Siwaili said the two figures were wildly unequal.

“We have reached the conclusion that even if several assumptions were true… instead of receiving the $14.6 billion the Kurdistan Regional Government (KRG) is entitled to from the budget, it would only receive $8.398 billion from annual oil revenues,” he said.

“In fact, the real amount will be much less than this,” he added, citing many costs and variables that have not been included in his calculations.

Kurdish officials consistently complain that Baghdad has never allotted more than 10 percent of the budget to the Kurdistan Region, whereas Erbil is constitutionally entitled to 17 percent.

“The real question is whether the KRG can survive with such a budget, considering factors such as the huge administration costs, considerable number of government employees, corruption, lack of governing experience and hundreds of other economic difficulties,” Siwaili said.

His calculations were based on analyzing a best-case but unlikely scenario, under which oil prices remain at $100 per barrel for the entire year, exports remain uninterrupted at 400,000 barrels per day (bpd) and there are no additional costs such as transit or other fees.

Baghdad has strongly opposed independent oil exports by Erbil, bound for markets in Turkey and beyond. Baghdad and the Kurds are currently at loggerheads over how the revenues would be shared. In its anger, one of Baghdad’s suggestions has been that Erbil can keep the revenues, as long as it does not insist on its share of the national budget.

“Assuming that the exported oil through Turkey will be sold at the price of the international market is a weak premise as well, because according to the agreement between the Kurdistan Region and Turkey, 50 percent of the exported oil will be sold to Turkey at a lower price than on the international market, and only the other half will be sold at the price on the international market,” Siwaili explained.

Other assumptions are that the process of collecting oil revenues would be completely transparent and honest.

Siwaili also offered a reminder that the KRG is bound by revenue sharing agreements with foreign oil companies extracting the oil, meaning that the cash finally ending up in Erbil’s coffers would be even smaller than his calculations.

The KRG intends to boost current oil exports of 150,000 bpd to 400,000 bpd by the end of 2014.