Sunday, January 23, 2011

Has Baghdad And Kurdistan Finally Come To An Agreement Over Oil Exports And The 2011 Budget?

On January 18, 2011 Prime Minister Nouri al-Maliki and Kurdistan Regional Government (KRG) Premier Barham Saleh announced that they had reached a number of agreements over Kurdish oil exports and the 2011 budget. The two sides said that Kurdistan would be allowed to export petroleum again, and at a slightly lower level than originally asked for by Baghdad. The compromise didn’t seem to answer all of the outstanding issues between the two however.

The Oil Ministry told the press about the details of the new deal. It will pay the energy companies operating in Kurdistan for their costs. Those are Norway’s DNO and Turkey’s Genel Enerji that operate the Taq Taq field in Irbil and Tawke in Dohuk. This money will be distributed through the KRG’s Natural Resource Ministry. Foreign sales are to begin in February at 100,000 barrels a day. Originally the 2011 budget called for 150,000 barrels, but the Kurds objected claiming they couldn’t reach that mark initially. There is one major outstanding issue however. Irbil and Baghdad have not decided who will pay the operating companies’ profits, because the Oil Ministry said it would only cover costs. The Kurds are supposed to reach 250,000 barrels a day by the end of the year according to the KRG, so profits will eventually enter into the equation. If that’s not resolved sooner rather than later, the whole compromise could fall apart, similar to what happened in 2009.

In mid-2009 Baghdad and Kurdistan said they had reached a groundbreaking agreement to allow the Kurds to export their oil for the first time. That only lasted a few months because the central government refused to pay the oil companies. The Oil Ministry said the KRG had to pay the businesses out of its share of the budget. That never happened, the deal broke down, and the foreign sales were halted.

Iraqi officials have fallen into the bad habit of making bold pronouncements that don’t always come through. This deal over oil and the budget could work out if further talks are held, and the issue of the companies’ profits is resolved. It seems like Kurdish exports will begin before that happens however, which could cause real problems down the road. Not only could that lead to another break between Baghdad and Irbil over petroleum, but the KRG’s 17% portion of the budget is supposed to be reduced if they don’t meet their export quota. It seems like officials are going for expediency over thoroughness in this situation, which is exactly what got them in trouble in previous years.


Brosk, Raman, “KRG and Baghdad locked over budget bill and oil exports,” AK News, 1/17/11

Mohammed, Hazhar, “Kurdistan to resume oil exports in February,” AK News, 1/18/11

Rasheed, Ahmed, “UPDATE 1-Iraq to pay expenses to oil firms in Kurdish region,” Reuters, 1/19/11


Joe said...

so how does this affect the Central Bank of Iraq going forward?

Joel Wing said...

I don't think this has any direct impact upon the Central Bank. It won't have much affect economically since 100,000 barrels is around 0.05% of exports. It's a political deal more than anything, which may or may not work out.