Tuesday, April 12, 2011

Baghdad And Kurdistan No Closer To Resolving Oil Dispute

In February 2011, Iraq’s central government and the regional government in Kurdistan overcame a spat, allowing the former to export oil once again. The move was considered a major step forward between the two sides, but in fact, it may be just another stopgap measure that fails to resolve the larger differences between the two over exploiting the country’s natural resources.

It took sixteen months, but Baghdad and Irbil, the capital of Kurdistan came to another agreement about exports. Beginning in February 2011, the two operational oil fields in the region, Tawke and Taq Taq were once again allowed to sell their products to foreign markets. By the beginning of April they were producing an average of 115,000 barrels a day according to Deputy Prime Minister Hussein Shahristani. The Kurds were first allowed to export in 2009, but that abruptly ended in October over disputes over who would pay the companies pumping oil. That issue has still not been fully worked out.

The head of the oil committee in Iraq’s parliament said in early April 2011 that a deal between the central and regional governments over contracts would likely be completed in the second half of the year. Deputy Premier Shahristani seemed to put a damper on that possibility however, when he told the press that Baghdad would not recognize the Kurds’ production sharing agreements. Kurdistan has signed 37 of those types of deals, which allow more profits for companies, and lets them claim petroleum reserves on their books. Baghdad has offered technical service agreements instead, which favor the government. Shahristani has called the Kurdish contracts illegal as a result, and said that the regional government has to amend their deals so that they are aligned with Baghdad’s. Until then, the administration will only pay the companies in Kurdistan their costs, and not their profits. Not only that, but the Kurds have not presented their receipts to the Finance Ministry to get the oil businesses compensated yet for over a month’s worth of work. This presents an insurmountable difference between the two sides. The Kurds are not willing to change their deals, and Shahristani has been the biggest opponent of them since he was the Oil Minister from 2006-2010. Even though Prime Minister Nouri al-Maliki promised Kurdistan concessions over oil as part of their deal to support his second term, he has not yet been able to change Shahristani’s mind. The deputy premier is a major part of Maliki’s State of Law list, so the prime minister may not have much leverage over his opinion.

The new round of Kurdish exports has been held up as a breakthrough in Iraq’s energy policy. The differences between Baghdad and Irbil are as wide as ever though. Like many issues in Iraqi politics, this one seems to be driven by personal rivalries and disputes with Deputy Prime Minister Hussein Shahristani being the major opponent of Kurdish petroleum contracts. Since he has such an important position within the government and within Maliki’s coalition a compromise seems unlikely at this time. That could lead to a breakdown in foreign sales eventually because the companies operating in Kurdistan will not be satisfied with just getting paid for costs, and not profits.

SOURCES

Carlisle, Tamsin and al Sayegh, Hadeel, “Iraq gives go-ahead to Kurdish oil contracts,” The National, 12/26/10

Farge, Emma, “UPDATE 1-Iraq-Kurdistan to reach oil revenue deal by yr-end,” Reuters, 4/5/11

Hafidh, Hassan, “Impasse On Kurdish Exports Signals Broader Iraq Oil Uncertainty,” Dow Jones, 12/31/10

Hiltermann, Joost, “Kurdish crude bails out Baghdad,” The Argument Blog, Foreign Policy.com, 5/13/09

Reuters, “Iraq govt wants Kurdish deals amended-Shahristani,” 2/7/11
- “Iraqi Kurdistan crude output at 115,000bpd,” 4/7/11
- “SPECIAL REPORT – Risk, reward and Kurdistani oil,” 3/10/11

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