Tuesday, June 23, 2015

Strains and Stresses In the Kurdish-Iraq Central Government Budget Deal

The central and Kurdish regional governments tried to overcome their differences after the election of Prime Minister Haider Abadi. That was encompassed within the 2015 budget, which allowed the Kurds to export oil for the Oil Ministry in return for their 17% share of the budget. This agreement has been under constant stress since it was first announced with each side accusing the other of violations, threatening to withdraw their support, and demanding revisions. The core problem was that the deal lacked many specifics allowing the two sides to interpret it in their own ways. The tensions between the two were increased in April 2015 when the Kurdistan Regional Government (KRG) felt that it was far underpaid by Baghdad for how much it exported, and then responded by shipping most of its oil in June for itself. These ups and downs will continue into the foreseeable future, making it always seem like the two sides are on the precipice, but the deal appears to be holding for now.

The budget deal has come under increasing pressure in recent months. That started in May 2015 when the Kurdistan Regional Government (KRG) exported an average of 451,000 barrels a day in May for the Oil Ministry. That was its highest mark for the year so far, and accounted for 14% of the country’s total exports that month. In return, Baghdad sent $430 million to the KRG, which was the lowest amount since January. In that month the Kurds exported 153,000 barrels and received $208 million. In February it shipped 306,000 barrels and got $408 million, then 268,000 in March for $439 million, and 450,000 in April for $445,000. In the first three months of the year there was a rough proportionality between how much the Kurds exported for Baghdad and how much it was paid. That broke down in April and May. In January the Kurds accounted for 6% of exports and got 6% of the oil revenue. In February it shipped 11% of Iraq’s exports and received 11% of revenue, followed by 8% of exports in March and 9% of earnings. In April and May however, the KRG made up 14% of exports each month, but only got 9% and 8% of revenue respectively.

Iraq Oil Exports, Earnings And Payments To KRG 2015
Overall Avg. Iraq Oil Exports (mil/bar/day)
Kurdish Avg. Oil Exports
Kurdish % of Total Exports
Oil Revenue
Baghdad’s Budget Payment to KRG
Kurdish % of Oil Revenues

The discrepancy in payments led to a new round of political accusations. That started with KRG Premier Nechirvan Barzani who called for a new budget deal in May, because the central government was not paying Kurdistan what it was owed, and threatened to find an alternative source of revenue if things did not work out. Oil Minister Adel Abdul Mahdi travelled to Irbil that month to try to smooth things over, and met with President Massoud Barzani, but nothing came of it. These kinds of statements have been going on for months now. The budget deal called for the Kurds to export 550,000 barrels a day, but they have not reached that mark. They later revised that by saying that they would deliver 375,000 barrels a day for the first quarter of 2015, then over 600,000 for the rest of the year to reach an annual average of 550,000. The KRG did not make that either averaging 242,300 barrels in the first quarter, which officials and politicians in Baghdad have constantly complained about. Kurdistan also assumed that it would get its 17% of the budget minus expenses each month. That has not happened, and the central government has not revealed what formula it is using to determine payments. Finally, the Kurds appeared to have retaliated by independently exporting most of their oil production for the first half of June. The KRG has done this before because it has so much debt on its hands, but this appears to be a large escalation from previous months.

The budget deal has held for now, but it always appears to be on the verge of collapse. The root cause was that the agreement was rushed and lacks any details. That allows each side to interpret it in their own way, which will always lead to disagreements. What is clear is that neither Baghdad nor Irbil has fulfilled its obligations. At the same time, the two need each other. The central and regional governments have huge budget deficits this year fueled by the collapse in oil prices. They are dealing with the extra costs of having to fight the Islamic State. Baghdad wants to export as much as possible to increase its earnings, and the Kurds do not have to deal with the legal problems associated with exporting independently and the discount prices if they stick with the agreement. It is yet to be seen whether May was the straw that broke the back of the budget compromise or just another round of complaints.


eKurd, “Nechirvan Barzani decries Baghdad gov’t failure to pay Kurdistan,” 6/7/15

Iraq, Ali Abu, Van Heuvelen, Ben and Lando, Ben, “Oil exports keep pushing record highs,” Iraq Oil Report, 6/2/15

New Sabah, “Parliamentary Energy Commission reveal the reason for not sending dues to the Kurdistan region,” 5/29/15

Osgood, Patrick, Tahir, Rawaz, “Baghdad and KRG deadlocked over exports, payments,” Iraq Oil Report, 2/16/15
- “Budget payment buoys Baghdad-KRG oil deal,” Iraq Oil Report, 3/26/15
- “KRG receives first 2015 budget payment,” Iraq Oil Report, 3/4/15
- “Kurdistan receives May budget payment,” Iraq Oil Report, 6/8/15

Osgood, Patrick, Tahir, Rawaz, and Van Heuvelen, Ben, “Baghdad-Erbil oil deal strained by disappointing April payment,” Iraq Oil Report, 5/14/15

Al Rafidayn, “Sources: Kurdistan released most of its oil through June in blatant violation of the oil agreement,” 6/19/15

Rudaw, “Iraq’s oil minister leaves Erbil with no progress in oil & budget talks,” 5/15/15
- “PM Barzani: Baghdad ‘not committed’ to budget deal,” 5/14/15
- “PM Barzani calls for new Baghdad-Erbil oil deal,” 5/10/15

Yoshioka, Akiko, “Iraqi government pays to KRG almost exactly same % of northern export,” Twitter, 4/13/15

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