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Kurds may be fighting losing battle with
Iraq’s central govt over oil exports
14.4.2012
By Joel Wing — ekurd.net |
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March
14, 2012
For the second time in three years, the
Kurdistan Regional Government (KRG) has halted
its oil exports. Once again, the issue is the
central government not paying the companies
producing petroleum in the north. The matter is
attracting all of the usual hyperbole with Iraqi
politicians trading accusations against each
other. The problem for the Kurds is that their
actions will only hurt them. Oil production is
picking up in the south, and with a new terminal
opened in Basra, so are exports. That means
Baghdad doesn’t need the Kurdish contribution as
much as it once did. A compromise will likely
occur, but it might take time until the war of
words between the two sides calms down.
The latest controversy between the Kurds and
Baghdad over oil started in March 2012. On March
26, the Kurdish authorities said they would
reduce their exports. On April 1, they stopped
them completely. In June 2011, Kurdistan hit
175,000 barrels a day in foreign sales, but
output had been going down since then. The
reason for the halt was a demand that the
central government pay the companies that were
pumping oil in the north. The Kurdistan Regional
Government (KRG) had been complaining about the
lack of compensation since March 15. The KRG’s
Natural Resource Ministry claimed that the Oil
Ministry owed them for 10 months worth of
revenue, roughly $1.5 billion. The Resource
Ministry said that Kurdistan had not seen any
money since May 2011, and only gotten two
payments of $514 million in total. On March 28,
Finance Minister Rafi Issawi responded that $558
million would be released to companies operating
in northern Iraq, which would come from the 2012
budget. Issawi noted that the funds would have
to be audited first. The Kurds were obviously
not satisfied with that, and decided to end its
exports in protest. This was just the latest
spat between the two over petroleum. It
immediately led to a barrage of attacks between
them.
The regional and central government have a
series of long-standing disputes over the
country’s natural resources, some of which came
out after the Kurds decided to stop their
exports. The Oil Ministry complained that the
KRG was not meeting its quota set in the 2012
budget, which calls for 175,000 barrels a day in
exports. The harshest comments emanating from
Baghdad came from Deputy Premier Hussein
Shahristani who is in charge of energy policy.
He accused the Kurds of smuggling oil to Iran
and Turkey,www.ekurd.net
producing $3.4 billion worth of petroleum that
was never officially exported, and called
Kurdish oil contracts illegal. Shahristani has
always been opposed to the Kurds’ independent
energy program, arguing that Baghdad should be
in control of all of the oil and gas in the
country. He has continuously made the most
vitriolic comments about the KRG as a result.
His charges of smuggling and illegal contracts
have all been made in the past whenever problems
erupt between the two.
Members of the Kurdish Coalition and the oil
committee in parliament tried to step in and
mediate. A lawmaker from the bloc said that the
KRG should restart its exports, warning that the
matter could turn public opinion against the
Kurds. He said that the matter needed to be
dealt with in another way instead of an
escalating series of tit for tat maneuvers. At
the same time, he warned Baghdad that
Kurdistan’s patience was running out, and
criticized Shahristani’s comments. A member of
the oil committee said that one problem was that
the Kurdish Natural Resource Ministry is not
transparent, and does not provide a full
accounting of its oil production and exports to
the central government. At the same time, it was
hoping that it could be a middleman in the
argument between the two sides. These were
helpful comments at a time when politicians in
Baghdad and Kurdistan were escalating their war
of words. Whether they have any influence is yet
to be seen.
2012’s breakdown in relations over petroleum
harkens back to a similar situation that
occurred in 2009. In May of that year, the
central and regional governments worked out a
deal to allow the Kurds to export oil for the
first time. The Oil Ministry controls the
country’s pipelines, and therefore the KRG must
get its permission to ship any of its products
to other countries. In just a few months,
exports were halted when Natural Resource
Minister Ashti Hawrami was caught up in an
insider trading scandal involving Norway’s DNO,
one of the companies that produces oil in
Kurdistan. In October, all exports were halted
with the Kurds complaining that Baghdad was not
paying any of the energy corporations operating
there. In May 2010, another deal was struck,
this time as part of the political agreement for
the Kurds to support Prime Minister Nouri al-Maliki’s
second term in office after parliamentary
elections were conducted in March. The Kurds
were to export 100,000 barrels a day, and that
amount was set in the 2011 budget. The KRG would
be allowed to sell its oil once again using the
northern pipeline to Turkey, but Baghdad was
only going to pay the oil firms for their costs,
not profits. In February 2011, exports started
once again for Kurdistan, which lasted fourteen
months until the latest controversy erupted. The
two situations closely mirror each other. The
Kurds are complaining that the central
government is not compensating oil companies
once again.
The Kurdistan Regional Government finds itself
between a rock and a hard place on the matter.
At this time, oil production and exports are
increasing in the south, having hit a
post-Saddam high in March 2012. New terminals
are coming on line in Basra province, which can
only lead to the numbers to continue to go up.
That means the Oil Ministry can make up for any
lost production from Kurdistan, which was never
a large amount of the total to begin with. For
all of 2012 to the present, Iraq has been
average over 2 million barrels a day in exports.
That meant the Kurds were only contributing less
than 10% of that amount. If the KRG isn’t
sending its oil through the northern pipeline,
it can only rely upon smuggling to neighboring
countries. That provides unregulated revenue
that doesn’t have to go through Baghdad, but it
isn’t as much money. That means that Kurdistan
has little leverage in this matter. It has to
eventually compromise with the Oil Ministry if
it wants to not only export once again, but also
expand its oil industry, because no foreign firm
is going to enter the market in northern Iraq
simply to explore, produce for the local market
or smuggle. The problem is that the current
political climate in Iraq is charged, with the
Kurds criticizing not only the government for
its stance on energy, but the actions of the
prime minister as well. That will only delay the
inevitable when the Kurds are forced to the
negotiating table once again to work out some
kind of compromise to clear up the payments to
firms working there, so that it can once again
start exporting. The last time this happened it
took six months to resolve the matter. It may
take at least that much time this go around.
SOURCES
AK News, “Kurdistan to produce 400,000 bpd by
end of the year,” 3/11/12
Brosk, Raman, “Oil companies operating in
Kurdistan reduced production due to non-payment
by federal government,” AK News, 3/15/12
- “Shahrestani should focus on paying dues not
making threats,” AK News, 4/3/12
Chaudhry, Serena, “UPDATE 2-Iraq’s Kurdish
region threatens oil export halt,” Reuters,
3/26/12
Chaudhry, Serena and Karouny, Mariam, “Iraq
approves $560 mln for Kurdish oil payments,”
Reuters, 3/27/12
Dow Jones, “Iraq Kurdish Oil Exports Sliding To
75,000 B/D On Payment Delay – Officials,”
3/12/12
Hafidh, Hassan, “Iraqi Kurdistan Rejects Charges
Of Oil Smuggling,” Dow Jones, 4/3/12
Al-Jawari, Fulaih, “”Influential parties” in
federal government smuggle oil to Israel, says
Kurdish Blocs Coalition,” AK News, 4/3/12
National Iraqi News Agency, “Kurdish Alliance
asks the KRG to resume oil exportation,” 4/4/12
Al-Shamari, Yazin, Ali, Haba and Ibrahim, Haidar,
“Kurdistan Blocs Coalition wants Kurdistan to
resume oil exports to end provocation against
Kurds,” AK News, 4/5/12
Smith, Grant, “Kurdistan Says Iraq Must
Investigate Missing Crude Exports,” Bloomberg,
3/15/12
Al-Wannan, Jaafar, “Deputy PM: Kurdistan didn’t
fulfill its oil export obligations,” AK News,
4/2/12
- “Kurdistan to increase oil production as
federal government agrees to pay Iraq’s dues,”
AK News, 3/31/12
Al-Yasseri, Ali, “Kurds resume shipping oil for
export following payment of foreign company dues
by Baghdad,” Azzaman, 3/31/12
Yeranian, Edward, “Iraq’s Kurdistan Region Halts
Oil Exports to Baghdad,” Voice of America,
4/2/12
Zalla, Mihemed Eli, “Kurdish and Sunni Leaders
Accuse Maliki of Authoritarian Rule,” Rudaw,
3/30/12
Zebari, Abdel Hamid, “Kurds claim Iraq owes $1
bn for oil pumped in 2011,” Agence France Presse,
3/15/12
Joel Wing, with an MA in International Relations,
Joel Wing has been researching and writing about
Iraq since 2002. His acclaimed blog, Musings on
Iraq, is currently listed by the New York Times and
the World Politics Review. In addition, Mr. Wing’s
work has been cited by the Center for Strategic and
International Studies, the Guardian and the
Washington Independent. You may visit his Blog
Musings On Iraq at musingsoniraq.blogspot.com
Copyright © 2012 ekurd.net
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