Baghdad, KRG reach agreement in oil dispute

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Al-Akhbar Management

Published Tuesday, December 2, 2014

Updated at 1:07 pm (GMT +2): Iraq's government reached a formal agreement with Kurdish regional authorities after three days of talks in Baghdad covering oil exports and budget payments, a senior Kurdish official said on Tuesday.

The two governments agreed to export 300,000 barrels per day (bpd) of oil from Kirkuk and 250,000 bpd from the northern Kurdish region through Turkey, Finance Minister Hoshiyar Zebari said.

Iraqi state television said that the deal also provided for the payment by the federal government of 17 percent of the national budget to the Kurdish regional government.

"The deal was reached today and endorsed by the Iraqi cabinet. Now it's a done deal," Zebari told Reuters.

A statement from Iraqi Prime Minister Haidar al-Abadi's office also confirmed the news saying that the deal was approved during a cabinet meeting also attended by Kurdish Prime Minister Nechirvan Barzani.

Baghdad will also give a share of its military budget to the Kurdish peshmerga fighters.

"The federal prime minister has expressed his readiness to guarantee one billion dollars from the Iraqi budget for the peshmerga forces," Barzani said.

Following the agreement, shares in Iraqi Kurdistan-focused oil producers rallied by 7 to 15 percent.

The Central Iraqi government and Kurdish Regional Governments had disagreements over the sale of Kurdish oil and the share of oil revenues when the Kurdish Regional government began selling oil independently from the central government via the Turkish port of Ceyhan.

Iraq, which pumps around 3.5 million barrels per day, is OPEC's second largest exporter after Saudi Arabia.

At a meeting mid November in the Kurdish capital Erbil between Iraqi Oil Minister Adel Abdul-Mahdi, Barzani and his deputy, Qubad Talabani, Baghdad agreed to pay $500 million to Kurdistan in exchange for the transfer of 150,000 barrels of oil per day to the federal government.

The year-long budget dispute led to a sharp deterioration of relations between the federal government and the Kurdish region.

Iraqi Kurdistan has its own security forces, government, borders and flag, but has been reliant on payments from Baghdad for funding.

The region's decision to independently sign contracts with foreign firms to develop its natural resources – a move that could ultimately pave the way for independence – has been a major point of contention with Baghdad.

A resolution of the budget feud is seen as an essential step in improving cooperation at a time when both are battling the Islamic State in Iraq and Syria (ISIS) jihadist group, which has overrun large parts of Iraq since June.

After recapturing the town of Baiji earlier this month, Iraqi security forces entered the country’s largest oil refinery after months of battling ISIS militants who had surrounded it.

The huge refinery, which is on the road linking Mosul and Tikrit, the two largest cities under ISIS control, once produced 300,000 barrels a day, accounting for half of the nation's needs in refined oil products.

ISIS, which declared a "caliphate" over territory it seized in Iraq and Syria, is being described as the world's wealthiest "terror" group, earning $1 million a day from black market oil sales alone.

An International Monetary Fund report in early October expected that Iraq's gross domestic product is forecast to shrink by 2.7 percent this year, down from the 5.9 percent growth it forecast in April because of militants control of oil fields.

ISIS no longer relies on wealthy donors from Gulf states and has become financially self-sustained in both Iraq and Syria.

The militants in Syria said earlier this month they took control of a gas field in the central province of Homs, the second gas field seized in one week after battles with the Syrian army.

The returns of oil trade contribute to the expansion of recruitment of these terrorist groups.

(Reuters, Anadolu, AFP, Al-Akhbar)

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