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Could Baghdad-Arbil end Iraq’s protacted oil dispute?
BAGHDAD, July 28, 2019 (BSS/AFP) – Iraq’s federal authorities and the
cash-strapped Kurdish regional government (KRG) have relaunched talks over
longstanding oil and budget disputes, but observers are sceptical they will
reach a genuine diplomatic reset.
Here are a few questions and answers to clarify the complex issue.
What’s the dispute?
Ties between Baghdad and Arbil have long been strained, amid federal fears
the energy-rich Kurdish autonomous region would seek independence.
They plunged sharply in 2014 when the KRG began exporting oil directly to
Turkey, taking advantage of the chaos sparked by the Islamic State group’s
onslaught.
Under a deal mediated by then-oil minister Adel Abdel Mahdi, the KRG
agreed to export oil through Iraq’s State Oil Marketing Company (SOMO) in
exchange for resuming the receipt of its share of the federal budget.
But it has never been fully implemented, with Arbil demanding larger
budget allocations and both sides trading accusations over unfulfilled terms.
The relationship soured even further when Kurds voted overwhelmingly in
favour of secession in 2017.
What’s the current state of play?
Iraq’s 2019 budget stipulates the KRG must export 250,000 barrels per day
of oil through SOMO and hand other crude revenues to Baghdad in exchange for
around 12 percent of the budget, or $8.2 billion.
In a first, the budget stipulates Baghdad will pay KRG’s salaries
regardless of whether other terms are honoured.
Baghdad has been paying those salaries but not the rest of the allocation
because the KRG has continued directly exporting up to 500,000 bpd to Turkey.
In July, the KRG’s new prime minister Masrour Barzani met Adel Abdel
Mahdi, now premier of Iraq, to form technical committees to tackle the
disputes.
“Barzani was almost in a rush, which is a good sign,” said an Iraqi
official with knowledge of the file.
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Why does Iraqi Kurdistan want talks?
The main reason appears to be a looming economic crisis: Barzani said the
region was $14 billion in debt, but the real number could be double that,
experts estimate.
The KRG has a bloated public sector, budgeting a record $8.9 billion in
2019 for some 1.2 million state employees, many of whom are suspected of
being “ghost workers”.
It will earn a net estimate of $3.5 billion in oil sales this year and is
set to receive $4.6 billion from Baghdad in salary payments, according to the
federal budget.
The gap leaves the region in “dire straits”, forcing it to postpone public
salary payments by several months, said Ahmad Tabaqchali of the Sulaymaniyah-
based Institute of Regional and International Studies, who carried out a
comprehensive study of the budget dispute.
“The oil issue needs to be resolved because that’s killing the KRG’s
economy,” said Sarkawt Shamsaddin, an Iraqi MP who hails from the Kurdish
region and follows the file.
“People aren’t sure by the end of the month if they’re getting paid. It
affects salaries, investments, and more,” he added.
The KRG is optimistic, Shamsaddin said, as Abdel Mahdi is “sympathetic and
has a history of dealing with the Kurds”.
What about federal authorities?
For his part, Abdel Mahdi hopes a lasting agreement could grant him more
solid political footing than the tenuous parliamentary alliance that brought
him to power last year.
“One of Abdel Mahdi’s natural allies may be the KRG,” said Tabaqchali.
“He knows he can’t depend on the two rival factions. He needs to secure
the third leg of the stool,” he said.
Could there be a real reset?
Despite apparent good will, the differences may be far too entrenched and
even existential for a genuine compromise.
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“There’s a basis for dialogue, but there’s no decision to actually resolve
the issue,” a government source in the disputed territory of Kirkuk told AFP.
“It’s a national cause, full of political disputes between all sides, plus
regional and international interference.”
Stakeholders include global energy companies, the Organization of the
Petroleum Exporting Countries (OPEC), and allied states like the US, whose
officials have urged Baghdad and Arbil to reconcile.
But Ruba Husari, an analyst at the Iraq Oil Forum, said talks were at “a
dead end”.
“Any new agreement would only be temporary and suffer the same flaws as
its predecessor,” she told AFP.
On the one hand, she said, the KRG fiercely rejects federal control of its
borders, oil or revenue.
Meanwhile, “Baghdad does not speak in one language to the Kurds and does
not have a state policy,” Husari said.
Even if Abdel Mahdi negotiated a deal, he will struggle to convince his
parliamentary opponents to endorse it as many MPs have slammed him for being
too lenient towards the KRG.
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