Six months ago, Iraq and its semi-autonomous region in the north, Iraqi Kurdistan, signed an oil export deal that would give the Iraqi government access to oil in the Kurdish region. In return for the Kurdish oil, Iraq would give the Kurdistan Regional Government (KRG) to 17% of its federal budget. This deal, known as the “December Deal,” is now close to collapse.
Both Sides Have Failed to Deliver
Over the past few months, the KRG has constantly complained that they haven’t been given access to the promised 17% of the Iraqi federal budget. In reply to the Kurds’ complaints, Iraq claims that the Kurds hadn’t given Baghdad access to all the oil in Kurdistan.
After months of complaints and lack of payment, the KRG has decided to turn up the volume to independent oil sales, and turn down the volume of sales to the Iraqi state-run SOMO, or State Organization for Marketing of Oil.
When asked about the original deal, Kawa Mohammed, a Kurdish member of the Oil and Energy Committee in Iraq’s parliament, told the Wall Street Journal: “The oil deal between Baghdad and KRG has reached a deadlock.” The December Deal, he said, “was built on uncertain foundation, very weak foundations, with a lack of trust on both sides.”
Both Sides Under Economic Pressure
Part of the failure to deliver on promises may be due, in part, to the enormous pressure that both the Iraqis and Kurds are feeling from the fight against the self-declared terrorist organization, Islamic State or ISIL.
In the north, the Kurds defend a 620-mile front line against ISIL. In Iraqi Kurdistan, the Kurdish Peshmerga defends Muslims and Christians alike, but is grossly underfunded and under equipped. The two million refugees flooding Iraqi Kurdstian have put a nearly $1.4 billion burden on the KRG.
In the south, the Iraqi military also defends a frontline against ISIL. But without the presence of U.S. armed forces, the Iraqi government is bearing the brunt of the ground fighting, straining a budget that traditionally depends on revenue derived from oil sales.
Bleak Prospects for Future Oil Agreement
The relationship between Erbil and Baghdad has soured. The Wall Street Journal has quoted Jabbar Abdul Khaliq, an Arab member of parliament’s finance committee, as saying, “Baghdad didn’t pay what Kurdistan was asking for because Kurdistan didn’t give Baghdad what it was supposed to.”
In response, officials in Erbil have said that their independent oil sales have been the only thing that has kept them afloat during this time of turmoil. Regardless of blame, Kurdish oil companies are suffering, Kurdish oil workers are protesting, and the threat of ISIL still looms overhead.[To Read More Visit Oil Pro]