Oil-for-budget war reignites between Erbil and Baghdad
ERBIL, Kurdistan Region – Having spent a year shirking its end of the oil-for-budget agreement with Baghdad, the Kurdistan Regional Government (KRG) has said it is ready to hand over its quota of 250,000 barrels per day (bpd) of oil in exchange for its share of the Iraqi federal budget.
Dara Rashid, the KRG planning minister, told a press conference in Erbil on Sunday the Kurdistan Region is ready to deliver the oil quota to Iraq’s State Organization for Marketing of Oil (SOMO) in return for public finances.
“We are ready not only to hand over 250,000 barrels of oil per day to Baghdad, but also to hand over the entire KRG oil product. But in return, Baghdad must commit to sending all the financial shares of the Kurdistan Region and the entitlements of the oil companies operating in Kurdistan Region oilfields,” Rashid said.
His remarks follow an April 16 order from the office of Iraq’s caretaker Prime Minister Adil Abdul-Mahdi calling on the Iraqi finance ministry to halt budget transfers to the KRG and to take back all transfers made since January 1, 2020.
The Iraqi oil ministry issued a letter to the government on October 2019 pointing out the KRG had yet to deliver the oil quota despite receiving funds.
Control of oil revenues has long been a thorny issue between Erbil and Baghdad. The KRG has operated an independent oil and gas sector since 2006 and later began exporting its oil to the international market via a pipeline through Turkey.
Years of tensions over the independent oil sales came to a head in 2014 when then-Prime Minister of Iraq Nouri al-Maliki suspended the Kurdistan Region’s share of the federal budget – leaving hundreds of thousands of public sector employees with unpaid salaries.
That same year, the Kurdish Peshmerga took control of security in the disputed territory of Kirkuk, allowing the KRG to also seize control of the province’s bountiful oilfields.
When Iraqi forces retook the area in October 2017, the KRG lost around half of its oil revenues, compelling the government to suspend exports via Turkey for several months.
Erbil and Baghdad have continued to bicker over various versions of the oil-for-budget agreement, with the KRG receiving a share of the 2019 federal budget yet failing to hand over a single barrel of oil.
In December, Baghdad agreed to send Erbil a 12.67 percent share of the federal budget in exchange for 250,000 bpd.
However, with world oil prices falling to historic lows, the COVID-19 pandemic cutting international demand, and the KRG’s continued failure to uphold its end of the deal, Baghdad seems to have run out of patience.
Awat Sheikh Janab, the KRG finance minister, told the same Erbil press conference on Sunday that Baghdad ordered the KRG budget cut on April 16, but that a KRG delegation had traveled to Baghdad to smooth things over.
“On April 16, a decision was issued to cut the payment of KRG employees’ salaries,” Janab said. “On April 19 we went to Baghdad, and after holding many important and sensitive meetings with the Iraqi government we were able to reach a specific formula by sending a note from the General Secretariat to the Prime Minister to pay the salaries of KRG employees.”
The KRG delivered a memorandum to the office of PM Abdul-Mahdi on Thursday urging him to pay the salaries of KRG employees, according to Janab.
“However, Abdul-Mahdi still has not responded to our memorandum regarding KRG employees’ salaries, and we hope that his response will be positive,” Janab added.
Negotiations appear to be ongoing behind closed doors.
The dramatic drop in world oil prices was the result of a standoff between energy giants Russia and Saudi Arabia, who had flooded the market with cheap oil causing the price per barrel to drop to its lowest level in years.
Moscow and Riyadh reached a deal on April 12 to cut oil production by 9.7 million bpd – equivalent to 10 percent of the world’s daily supply – for May and June. Global demand will remain low, however, as a result of the COVID-19 pandemic and the economic downturn it has sparked.
OPEC producers and allies agreed to continue the reduction until April next year. Iraq pledged to adhere to the agreement on Saturday.
Erbil has also agreed to abide by the Iraqi government’s pledge to reduce oil production as part of the OPEC+ agreement to stabilize the struggling oil market.