The Kurdistan Regional Government (KRG) has fully committed to handing over a daily average of 250,000 barrels of oil in return for its share of the federal budget, after reaching an initial deal with the Iraqi federal government for the year 2020.
A KRG delegation traveled to Baghdad on Monday – its second visit in three days – to reach a deal with central government over Erbil’s share of the budget and its independent oil exports. A deal to handover the 250,000 barrels of oil per day to state oil marketing company SOMO was reached following six hours of discussion.
“There is now an initial agreement…for the [Kurdistan] Region to handover an average of 250,000 barrels per day of produced oil in the Region to the Iraqi Oil Marketing Company [SOMO], which will supervise its export through the Ceyhan port in Turkey… starting from January 1, 2020,” Iraqi Minister of Oil Thamir Ghadhban told reporters after the meeting.
The agreement on oil forms “one of the important pillars” of the 2020 budget bill, Ghadhban explained.
“In return, there is a budget [bill] being prepared, and the Region’s representatives will be part of it alongside their colleagues in the federal government,” he said.
Delegations will meet in Baghdad to finalize the budget bill proposal next Sunday and Monday, Ghadhban added.
The initial agreement was also confirmed by Iraq’s Minister of Planning, Nouri Dlemi.
“Agreements were reached over many of the essential matters. Next week, there will be a meeting to finalize the agreements that were reached in this meeting,” Dlemi told reporters.
“Starting from January 1, 2020, 250,000 barrels will be handed over [by the KRG to the Iraqi government],” the planning minister reiterated.
The agreement between the KRG and Iraqi federal government has been years in the making.
The KRG started exporting oil directly to world markets from its fields through the Ceyhan port in Turkey in 2013.
The independent oil sales infuriated the Iraqi government, led by then Prime Minister Nouri al-Maliki. Baghdad cut off the Kurdistan Region from its 17 percent federal budget share in 2014 while war against the Islamic State raged and Iraqi IDPs and Syrian refugees flocked to the Region for safety, sending the Region into a deep financial crisis.
The budget cut remained in place until the beginning of 2018, under Prime Minister Haider al-Abadi, who just gave a small percentage of the Region’s share of the budget to the Region.
The KRG was able to secure a more favorable 2019 budget bill with current Iraqi Prime Minister Adil Abdul-Mahdi, widely seen as an ally of Kurds.
In return for 12.67 percent share of the federal budget, the KRG was supposed to handover 250,000 barrels of oil per day to SOMO. Failing to do so would give the federal government the right to cut an amount of the Region’s budget share corresponding to the amount of the oil not handed over.
The federal government has overlooked the KRG’s failure to deliver the oil.
Erbil has claimed that contractual arrangements and debts to oil companies prevented the handover.
Two months of anti-government protests in Iraq’s south and center have rendered Abdul-Mahdi’s tenure precarious. KRG officials have moved with increased urgency to lock in a favorable budget share agreement in case any potential successor is less hospitable to Kurdish concerns.
“We relayed our perspective concerning the 2020 budget bill to the Iraqi side… we presented some projects concerning the topic of Kurdistan Region’s oil and budget [share], its financial entitlements, and the budget of the Peshmerga forces,” Khalid Shwani, KRG Minister of Federal Affairs told reporters after the meeting on Monday.
Kurdistan Region will have representatives in a committee established to formulate the budget bill.
This is a first for Erbil, as previous bills were prepared exclusively by federal government.
Some aspects of Monday’s agreement have yet to be set in stone, including the exact percentage of the Region’s share of the budget.
The KRG is pushing for a return of the pre-2014 17 percent federal budget share. Also unclear is who will pay for operation costs of companies operating the Region’s oil fields.