ERBIL, Kurdistan Region – Kurdistan Region President Nechirvan Barzani on Tuesday called on the United Nations special representative to Iraq to “mediate” in the renewed oil-for-budget spat between Erbil and Baghdad.
On April 16, Iraq’s caretaker Prime Minister Adil Abdul-Mahdi called on the finance ministry to halt budget transfers to the Kurdistan Regional Government (KRG) and to take back all transfers made since January 1, 2020.
Baghdad accuses the KRG of failing to send a single barrel of oil in exchange for its share of the federal budget – an arrangement agreed in December.
In a statement following his meeting with UNAMI chief Jeanine Hennis-Plasschaert in Erbil on Tuesday, Barzani called Baghdad’s move “unconstitutional” and “unlawful”.
“The KRG budget and salaries must not be politicized,” Barzani told Hennis-Plasschaert, according to a statement from the KRG Presidency.
The KRG was obliged to deliver a quota of 250,000 barrels per day (bpd) of oil to the state marketing firm SOMO in exchange for public funding.
Now that a collapse in world oil prices is threatening Iraq with financial ruin, Baghdad appears to be running out of patience.
Eager to keep public sector workers on the payroll, a KRG delegation headed by Deputy Prime Minister Qubad Talabani headed to Baghdad on Tuesday to thrash things out.
Mindful of the pain Baghdad caused when it cut the KRG’s budget in 2014, President Barzani urged the UNAMI chief to facilitate negotiations.
“The president asked the UN Special Representative to mediate in resolving the ongoing dispute,” the presidency statement read.
Hennis-Plasschaert was in Erbil this week to discuss several burning topics with KRG officials, including the formation of a new government in Baghdad and the Kurdistan Region’s response to the coronavirus outbreak.
A separate statement on the UNAMI Facebook page confirmed Hennis-Plasschaert and Barzani discussed the Erbil-Baghdad tensions but did not elaborate on the substance of the discussion.
Tuesday’s meeting with Barzani was also attended by Dr. Adham Rashad, representative of the World Health Organization (WHO) in Iraq, who has supervised the national response to the coronavirus outbreak.
“Ms. Hennis-Plasschaert and Dr. Adham commended the KRG’s response to the pandemic and praised the ongoing containment measures,” Barzani’s office said.
A day earlier Hennis-Plasschaert met with KRG Prime Minister Masrour Barzani, who told her Baghdad’s decision to cut the KRG budget was “politically motivated” and designed to “punish” the Kurds.
Mazhar Mohammed, an economist and adviser to the Iraqi prime minister, told Rudaw on Tuesday the spat is only “a temporary issue”.
“Resolving it is contingent upon understandings” that would better unify public finances between the central and Regional governments, Mohammed said.
“I expect a realistic, strong, and frank understanding between the Region’s and Baghdad’s finance departments will be created with legislative and executive foundations involved to properly unify the public finances,” he said.
By doing so, “we can secure the salaries of the Region,” he added.
Baghdad is locked in a seemingly endless process of establishing a new government led by Prime Minister-designate Mustafa Al-Kadhimi.
Kurdish leaders have already thrown their unanimous support behind Kadhimi, who will have a mandate to draft a new federal budget – once the Iraqi parliament approves his cabinet.
Iraq has not had a fully-functioning government since December, when mass protests forced Prime Minister Abdul-Mahdi to resign after just a year in office. Since then, Shiite political parties have wrangled over who should replace him and form the new cabinet.
Kadhimi was appointed as PM-designate on April 9. He has a month to select his cabinet and present it before the Iraqi parliament.
The oil-for-budget agreement between the KRG and the Iraqi federal government had been years in the making.
The KRG started exporting its oil independently of Baghdad via its own pipeline to the port of Ceyhan in 2013.
The independent oil sales infuriated the Iraqi government of Nouri al-Maliki, which cut the Kurdistan Region’s share of the federal budget from 17 percent to zero in 2014.
The move coincided with the outbreak of war with the Islamic State group (ISIS), a massive displacement crisis, and the collapse of world oil prices, which coalesced to plunge the Kurdistan Region into financial crisis.
The Region has been steadily recovering since former Iraqi PM Haider al-Abadi reinstated a portion of the KRG’s budget in late 2018 and Abdul-Mahdi secured a bigger lump sum under the 2019 budget.
In return for its 12.67 percent share of the 2019 federal budget, the KRG was supposed to send SOMO 250,000 bpd, but has consistently failed to do so, claiming contractual arrangements and debts owed to foreign oil companies prevented the handover.
The arithmetic behind the December deal has no doubt been shaken in recent months by the ongoing political crisis in Baghdad, the collapse of world oil prices, and the economic slowdown sparked by the pandemic.
Iraq depends on oil sales for 90 percent of its state revenues. Painful austerity measures are expected if Baghdad is to weather the financial storm.
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