Iraqi Kurds Threaten Government Oil Sales in Budget Dispute

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Iraq’s self-ruling Kurds are threatening to bypass the country’s central government and sell oil produced in the neighboring Kirkuk region in a dispute over revenue from crude sales by OPEC’s second-largest producer.

The Kurdistan Regional Government in northern Iraq will directly export crude produced in Kirkuk, an oil-rich area adjacent to KRG territory, if the central government doesn’t pay for Kirkuk’s budget, said Safeen Dizayee, a spokesman for the KRG. The government in Baghdad hasn’t made the payments as it agreed to do under a revenue-sharing accord with the Kurds, Dizayee said in an interview posted Wednesday on the KRG’s official website.

Iraq’s government rejects any “unilateral solution, as it contradicts the agreement as well as the budget law and harms everybody at a time we need to be united,” the prime minister’s spokesman, Saad Al-Hadithi, said by phone from Baghdad.

The KRG and central government agreed on Dec. 2 that Iraq’s state-run marketing agency would be responsible for the sale of all crude produced in the country. The failure of the two sides to settle their differences over how to share revenue from oil sales exacerbates uncertainty about crude supplies from northern Iraq, one year after Kurdish troops occupied Kirkuk and nearby oil fields to defend them against Islamic State militants.

Lacking Trust

“It’s certainly not looking good for the agreement,” Robin Mills, a Dubai-based analyst at Manaar Energy Consulting, said in an e-mail. “Neither side fully lived up to its commitments under the agreement, and there is not enough trust to rely on the other’s good faith.”

Iraq is pumping and exporting crude at record levels even after Islamist rebels seized much of the northwestern part of the country. Its output last month was 4.39 million barrels a day, second only to Saudi Arabia among the 12 members of the Organization of Petroleum Exporting Countries. Most of Iraq’s oil-producing areas lie in the south of the country, unscathed by fighting to the north.

Iraq ships most of its oil from the southern port of Basra, near the country’s biggest fields. Crude from the Kurdish region flows by pipeline to the Turkish port of Ceyhan. The central government re-routed crude from Kirkuk’s fields to reach Ceyhan via Kurdish territory after the conflict with Islamic militants forced it to abandon an older pipeline network to Turkey.

Under the December agreement, the KRG agreed to deliver 550,000 barrels of oil a day to the government-controlled state marketing body SOMO for sale.

Alleged Underpayment

Dizayee said the KRG provided that amount and is still waiting for its full share of revenue from the oil. It received $1.8 billion for January through May even though the central government owed it more than $5 billion in that period, he said.

Iraq’s government denies that the Kurds supplied the agreed-upon 550,000 barrels a day, and authorities in Baghdad sent the KRG less cash as a result, said Al-Hadithi, the prime minister’s spokesman.

The Kurds remain committed to the revenue-sharing agreement, Dizayee said. The KRG has legal means to fund its own budget and pay public-sector salaries and contractors, he said, without giving details. The KRG needs about $1 billion per month to meet its expenses, and oil sales could fund as much as 90 percent of the regional budget, Dizayee said.

Iraq’s Kurds tripled the amount of crude they sold independently of the central government in June. The KRG handled the sale of 421,000 barrels a day, or 74 percent of the oil shipped by pipeline to Turkey last month, according to a statement on its website. The Kurds allowed 150,000 barrels a day to be sold by SOMO.

In May, the KRG sold 22 percent of the exports by itself and handed three times as much oil to Baghdad, according to its website.