A new ad hoc arrangement for revenue sharing appears to be the order of the day between Erbil and Baghdad. The new arrangement lacks any legal sanction, but it may endure for some time given that it addresses key concerns of leaders in Baghdad as well as Erbil. Since 2005, agreement on a hydrocarbons law to manage revenue sharing between the Kurdistan Region and federal government in Baghdad according to the constitution’s provisions failed to materialize. When the Kurdistan Regional Government (KRG), following its interpretation of the constitution, pursued its own oil contracts and production sharing agreements with multinational oil companies, Baghdad strenuously opposed this. Even as the Kurds pumped oil into the Iraqi national pipeline, Baghdad refused to pay the oil companies in Kurdistan doing the pumping. Then Baghdad under Maliki and Abadi in turn violated the constitution in early 2014 by cutting Kurdistan off from its share of the national budget. From June 2014 onwards, the KRG made up for some of the shortfall by exporting oil from its territory as well as the disputed territories it gained control of at that time. Erbil sold some of the oil from around Kirkuk itself, while providing the rest of Iraq with another portion of the oil and proceeds. Following the October 2017 Iraqi takeover of Kirkuk and other disputed territories, however, the KRG lost too much oil producing areas to continue covering its expenses. All this takes us to today and the new de facto arrangement. Overriding strenuous Kurdish objections, Baghdad passed a new budget reducing Kurdistan’s share of the national budget from 17 percent to just over 12 percent. This sum is also calculated after the deduction of “sovereign expenses” by authorities in Baghdad. The sovereign expenses include items such as financing operations of the federal government, paying and provisioning the Iraqi army, running embassies abroad, remunerating oil companies for their production, and reparations to Kuwait. Part of the KRG objection to this involves how the sovereign expenses in question keep rising each year and the fact that, in the absence of a second legislative chamber for the regions and governorates as stipulated by the constitution, Kurdistan and the governorates lack any real say in the calculation of sovereign expenses. Kurdistan also refuses to let Baghdad exercise monopoly control over all oil and gas production in the country, in line with any reasonable interpretation of Article 112 of the Iraqi constitution (which stipulates, among other things, that Baghdad share this authority with the regions and governorates for anything relating to “present” fields — meaning that oil fields discovered after 2005 when the constitution was written fall under the sole authority of the regions and governorates). Allowing Baghdad monopoly control over the country’s finances would seriously undermine any real autonomy Kurdistan or other potential regions and governorates can enjoy. Baghdad’s concerns, in turn, involve controlling a Kurdistan Region that just held a referendum on independence and not allowing a situation wherein Kurdistan collects 17 percent of the national budget without turning over the revenues from its oil exports to that same budget. While Erbil was always willing to turn over these revenues, they refused to keep doing so as long as Baghdad refused to pay oil companies in Kurdistan the same way it does oil companies in the rest of Iraq — meaning before calculating the national budget and dividing it. The current system may address both Baghdad and Erbil’s concerns. Baghdad has begun actually paying Kurdistan its lower 12 percent share of the budget. At the same time, Kurdistan continues exporting its own oil (as well as gas in the likely near future) resources and keeping the proceeds. This avoids having to settle the contentious issue of who gets to sign oil contracts with foreign corporations and who pays the oil companies. It also lets Kurdistan maintain some level of financial autonomy, while still providing Baghdad with leverage on the KRG. If the combined oil exports from Kurdistan (without the disputed territories) and 12 percent of the national budget prove sufficient to meet the Kurds’ needs, it will signify a big improvement over the status quo of the past 4 years. The arrangement is only supposed to be temporary, until a legal agreement settles the points of contention between Erbil and Baghdad. As we all know, however, that kind of agreement can take a very long time in Iraq. David Romano has been a Rudaw columnist since 2010. He holds the Thomas G. Strong Professor of Middle East Politics at Missouri State University and is the author of numerous publications on the Kurds and the Middle East. The views expressed in this article are those of the author and do not necessarily reflect the position of Rudaw.
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