Kurdistan pushes for its independent oil company after $500 million deal with Iraq
Cautious optimism spread after a landmark deal that demands the Kurdish Region to send oil to Baghdad in return for $500 million budget boost.
A preliminary deal between Baghdad and Kurdistan Regional Government ( KRG) to resolve long-running financial disputes over oil has reduced a crisis to a national unity, Iraq’s Oil Minister said on Friday.
Earlier, speaking at a press conference, KRG Prime Minister Nechirvan Barzani said that if the two sides won’t reach an agreement, then KRG will have other options, warning about independence.
There has been tension between the Central Government and the semiautonomous Region of Kurdistan over oil issues.
Baghdad opposes the KRG’s independent export of oil and the Kurdish leaders, on the other hand, criticize Baghdad for withholding budget payments of the Region.
In a first move to end the disputes the two sides have now agreed to end the conflict. According to the deal, Baghdad is to pay $500m to Kurdistan in exchange for the transfer of 150,000 barrels of oil per day to the Federal Government.
The oil earmarked for Iraq’s Central Government will be approximately half of the KRG’s normal production.
Just as tensions between the two sides seem to ease, the Kurdish Parliament is set to vote early next week on proposals that would reduce the KRD's ties with Baghdad.
Lawmakers will vote on a bill to create a bank account that will consolidate the Region’s oil revenues, and to establish a public-owned company that would take charge of discovery, production and export of oil.
The creation of a Kurdish company dedicated to managing the Region’s oil would be a significant step towards the independent export of oil, but it could take years to implement.
The ongoing crisis between Baghdad and the KRG has created "a rift that threatens not only economic, security and political interests, but also the national unity," Iraqi Oil Minister Adel Abdul Mahdi said in a statement.
The dispute was harming both sides, with Iraq losing oil revenues and the Kurdish Region not receiving federal budget payments, according to Abdul Mahdi.
But Friday's agreement, while not final, "opens the way" to permanent solutions.
UN Iraq envoy Nickolay Mladenov also hailed the deal, calling it "a very important first step."
"This agreement will allow public sector employees in the governorates of Erbil, Dohuk and Sulaimaniyah to begin receiving their salaries. It will also allow the Kurdistan Regional Government to resume its contribution to the federal budget at a time of national crisis," Mladenov said in a statement.
The deal was reached at a meeting in the Kurdish capital Erbil between Abdul Mahdi, the Kurdish Prime Minister Nechirvan Barzani and his deputy, Qubad Talabani, the KRG said in a statement on Thursday.
The visit to Erbil was the first by Abdul Mahdi since his appointment as Iraq’s Oil Minister in September. He replaced Hussein al-Sharhistani, who took a strong stance against independent Kurdish oil exports.
The exports began in May 2014, when Kurdish officials announced a shipment of oil to the Turkish port of Ceyhan. KRG Premier Barzani Barzani is now due to head a delegation to Baghdad in the coming days, aimed at reaching “a comprehensive, fair and constitutional solution to all outstanding differences between the Federal Government and the KRG," the Kurdish government said in a statement.
The budget dispute has lasted almost a year and had led to a sharp deterioration of relations.
Resolving the budget feud is seen as an essential step in improving cooperation at a time when both are battling the Islamic State group, which has overrun large parts of Iraq since June.
However, there remain significant hurdles to finding a lasting solution to all the conflicts.
Kurdish politicians claim they are owed large sums in budget payments, which were halted in January 2014 in protest of the KRG’s oil exports.
The huge Kirkuk oil field in Kurdistan is also a point of contention – the federal government and the KRG both claim control of the field.
“There are issues that need to be resolved, but this is an important agreement,” Iraqi Finance Minister Hoshyar Zebari said on Thursday.
“It has removed a major obstacle in reaching a conclusive agreement in the future.” concluded the Minister.