The Kurdistan Regional Government (KRG) is facing an economic crisis just like the rest of Iraq. Almost all of its revenues comes from the sale of oil. To maintain production it has been trying to pay the energy companies that operate in the region each month. It was accomplishing that, but then a sudden drop in exports and revenue meant that it fell behind for two months during the summer.
Most of the oil companies working in Kurdistan have not been paid for their July and August work. Genel Energy and DNO were just paid at the end of September and start of October for their July production. They are still owed money as are the other producers. Iraq Oil Report estimated that the KRG owes over $100 million from the summer.
The cause of the delay was lower than expected oil revenues in August. In that month the KRG earned $350 million, $40 million less than the month before. That was due to oil prices going down, and exports going from an average of 510,000 barrels a day in July to 453,000 in August.
Not only that, but Kurdistan has signed deals with oil traders that advance it money and if it does not meet a set amount it goes into debt to them. In July the KRG had to pay those companies $63.4 million, and $90.8 million in August. Those huge debts and the drop in profits were why the Kurds could not make their obligations to the oil firms.
In the short term, these non-payments will not affect Kurdistan’s oil industry. There will still be exports and refinery work. What it will do is harm the Kurds’ and companies’ long term plans of investment and expansion. The KRG owes millions of dollars for exports from previous years. That along with the non-payments during the summer meant that few companies are willing to boost their work in the region. These problems are why Kurdistan President Massoud Barzani is entering into talks with Baghdad again about the energy sector and the budget. Barzani is always talking about independence for the KRG, but there is no sustainable economy to base it upon right now. The region is in debt, and falling deeper into the hole with all that implies for taking care of its workers, infrastructure, the war with the Islamic State, etc.
Calcuttawala, Zainab, “International Oil Firms Face Missing Payments from Kurdistan,” Oil Price, 9/22/16
eKurd, “DNO receives $37.4 mln payment for Iraqi Kurdistan oil exports,” 10/3/16
- “Genel, partners receive overdue $23.37 mln payment for Kurdistan oil export in July,” 9/28/16
Osgood, Patrick, “KRG keeps producers waiting for pay,” Iraq Oil Report, 9/26/16
- “KRG revenue plummets in July, IOCs await payment,” Iraq Oil Report, 8/5/16
Osgood, Patrick and al-Najar, Kamaran, “KRG oil shipments, revenue fall in August,” Iraq Oil Report, 9/5/16