Thursday, May 20, 2010

Kurdish Oil Exports Placed On Hold Until New Iraqi Government Seated

On May 6, 2010 Iraq’s Oil Ministry announced that it had brokered an agreement with the Kurds to allow them to export oil once again. On May 18, the Iraqi cabinet said that it had approved the deal. The Kurdistan Regional Government (KRG) had originally sold its petroleum overseas from June to September 2009 before it stopped due to a dispute with the Oil Ministry over who should pay the oil companies for their work. At the beginning of 2010 the two sides began talking again as Prime Minister Nouri al-Maliki attempted to win the Kurds over to his side before the parliamentary elections. Eventually the KRG and Oil Ministry agreed to allow the Kurds to export, the Ministry to pay the companies for their work, the revenues to be deposited in Baghdad, and then the money to be distributed back to Kurdistan. That deal is now on hold.

On May 17, the KRG’s Natural Resource Minister said that Kurdistan would not start exporting until a new Iraqi government is seated. That makes sense since any new regime is likely to put the oil deal on hold, review it, and perhaps even change it, so it would be better to hold off on exports until the incoming parliament takes power in Baghdad, and all the final details are worked out.

Even before the Minister’s announcement, there were problems emerging. First, on May 11, the Deputy Oil Minister said that there was no final agreement between the central and regional government because the Finance Ministry had not approved the payment of foreign oil companies operating in Kurdistan. A few days later, Oil Minister Hussain Shahristani stated that if a new oil law was passed the Kurds would not have the right to sign export contracts with petroleum corporations. The Minister went on to say that oil belongs to the nation, not Kurdistan. Who has the authority to negotiate deals for the exploration and exploitation of oil has been one of the major disputes between the KRG and Baghdad. The Kurds say they can sign their own contracts, while the Oil Ministry claims only they have the right to do so. Shahristani’s statements would point to continued deadlock over the issue. The Minister may only have months more in office however as he’s likely to be shifted to another position within the new government whenever it is seated.

For now, the Kurdish export deal is being postponed. It’s likely going to take several more months before a new prime minister is named and the 2010 parliament takes office. Even then its unclear that the new government will okay Kurdish exports, although the Kurdish parties are making assurances over their oil contracts a key demand to join any ruling coalition. All along the agreement appeared to be a political one, meant to woo the Kurds to Prime Minister Maliki’s side during the 2010 elections. There’s no guarantee that he will return to power, so the country will have to wait and see whether the new regime will be any different from the previous one when it involves dealing with the KRG. The export deal may be one bell weather as to how the new relationship is working.

SOURCES

AK News, “Baghdad and Erbil reach no agreement over regional oil export,” 5/11/10
- “Shahristani: “Adopting oil law will not allow KRG to contract with international companies,”” 5/12/10

Reuters, “Iraq Kurd Oil Exports to Flow Only Under New Govt,” 5/17/10

3 comments:

Ali said...

Hi Joel,
According to http://www.hrtribune.net/View.aspx?id=208, exports will restart tomorrow.

Joel Wing said...

The KRG may just jump the gun and go ahead because I read another report this morning from AK News saying that they still hadn't gotten the letter from the Finance Ministry that they will pay the oil companies for their work.

Joel Wing said...

Ali I read another article that said the Finance Ministry is still going through the companies operating in Kurdistan to see how much they should be compensated. This could just be a technical issues that could be resolved by tomorrow. However if the KRG goes ahead and starts exporting before Baghdad is ready that could lead to more problems.

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