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Iraq increases pressure upon Kurdistan for
its oil policy by threatening to cut its share of
the budget
24.7.2012
By Joel Wing —
Ekurd.net |
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July 24, 2012
The dispute between Baghdad and the Kurdistan
Regional Government (KRG) over their independent
energy policies continues to escalate. In April
2012, the Kurds ended their oil exports over a
payment dispute with the central government.
Immediately, officials condemned the move, and
claimed that it was threatening Iraq’s revenues.
That led to a number of statements by Prime Minister
Nouri al-Maliki and his deputy Hussein Shahristani
that they would deduct the amount of money they
claimed the KRG owed from its share of the national
budget. This was a major threat since almost all of
Kurdistan’s funds come from Baghdad.
Prime Minister Nouri al-Maliki made the Kurds’ oil
policy the topic of discussion at a recent cabinet
meeting in July 2012. According to Trade Minister
Khayrulla Hassan Babakir Mohammed of the Kurdistan
Democratic Party (KDP), the premier arrived at the
meeting and proclaimed that Kurdish oil smuggling
would be at the top of the agenda without informing
anyone before hand. He allegedly brought files on
the Kurds’ energy deals with him. Oil Minister Abdul
Karim Luaibi said that petroleum had to be
controlled by the central government, and claimed
that Kurdistan was smuggling oil to Iran and Turkey.
Maliki stated that the KRG had earned $8 billion
from this illegal activity, which was not sent to
the government’s coffers. He demanded that money be
deducted from the Kurds’ share of the national
budget.
The Kurdish ministers and Deputy Premier Roj Nouri
Shaways of the KDP along with Finance Minister Rafi
Issawi of the Iraqi National Movement all objected.
The Kurds claimed that trucking oil to Turkey was
legal, and blamed the lack of an oil law as the real
problem in Iraq. Maliki ignored those complaints,
and called for two auditing committees to be formed
to go through the KRG’s Natural Resource Ministry’s
finances. Despite the Kurds no votes, the proposal
was passed by the parliament. This was mostly for
show since Maliki and his allies have been talking
about reducing the Kurds’ budget since April. The
fact that it came up in a cabinet meeting however,
gave the threat more weight. Before, the subject was
only brought up in conversations with the press. Now
the prime minister was requesting official action on
the matter with the investigating committees. That
doesn’t mean it will actually happen, but it raises
the pressure on the Kurds, which was the premier’s
goals.
The origins of this latest argument started when the
Kurds stopped exporting oil. On April 1, the KRG
announced that it would no longer be shipping its
petroleum abroad due to a payment dispute with
Baghdad. It claimed that it was owed $1.5 billion.
Finance Minister Issawi responded that his ministry
was in the process of distributing $558 million to
them,www.ekurd.net
but the Kurds said that it was too late. The next
day, Deputy Premier Hussein Shahristani who is in
charge of energy policy held a press conference
where he accused the KRG of smuggling oil to Iran
and Turkey. He stated this Kurdistan had earned $3.5
billion from these illegal activities in 2011. He
went on to say that this would lead to a deficit,
because not only was it not turning over its
petroleum revenues, but was not meeting its 175,000
barrel a day export quota set for it in the 2012
budget. Even before the Kurds ended their exports,
it was not meeting this amount.
Shahristani told the press that in total the KRG
owed Baghdad $5.6 billion, and that should be
deducted from their share of the budget. This was
the first time that this idea was brought up
publicly. In July, Shahristani officially requested
that the Finance Ministry cut $5 billion from
Kurdistan’s budget, but they refused, and sent the
issue to the cabinet for review. The deputy premier
has been the staunches topponent of the Kurds’
independent oil policy. He has consistently claimed
that all of the KRG’s oil deals are illegal, that
the central government should control all the
nation’s natural resources, and that it is the only
body with the authority to export as well. It was no
surprise then that he was the first to make a
comment about punishing Kurdistan financially for
ending its exports, and smuggling. The KRG has been
sending oil to neighboring countries since the
1990s, but Baghdad has said little about it unless
the press brought it up. Maliki’s government is
feeling like it has the upper hand over energy
policy now, because production is taking off in
southern Iraq. That has given it the confidence to
mention things like smuggling, which it would not
have done otherwise, because it felt like it needed
Kurdish oil to raise more money. That’s not true
anymore, which led to Shahristani’s press
conference.
The deputy premier’s remarks had added weight when
the Kurds officially announced that it would start
trucking oil to Turkey in return for fuel in July.
When the KRG mentioned that it wanted to build two
independent pipelines to Turkey, the central
government responded by cutting petrol shipments to
Kurdistan. The Kurds started talking about shipping
oil to Turkey in May as a result to make up for this
loss, which gained Ankara’s official approval in
July. Turkey’s Energy Minister said it would take
petroleum trucked in as border trade, but would not
agree to the use of any Iraqi pipelines by the Kurds
without Baghdad’s approval. This of course enraged
Maliki, Shahristani, and company even more. They had
just accused the Kurds of smuggling oil, and now
they were officially stating that they were doing
it. Not only that, but Turkey agreed, and even said
that it was hoping that the trade would increase.
That was probably a driving force for the prime
minister to bring up financially punishing Kurdistan
in his July cabinet session.
There’s no telling whether the threat to reduce the
Kurds’ budget is real or not yet. Prime Minister
Maliki is definitely upping the ante by going from
statements to the press to officially asking the
cabinet to look into the matter. This is just the
latest test of wills between the central and
regional governments. Maliki is felling more
emboldened since southern oil production is taking
off. That leads him to believe that the Kurds are no
longer necessary to develop the industry or to earn
money. In turn, the pressure is building upon the
KRG. While its share of the national budget is 17%
after some expenses are deducted, that money makes
up 95% of the KRG budget. That makes it largely
dependent upon the central government, and
specifically the southern oil fields, which provides
90% of the country’s revenue if not more. Kurdistan,
just like the rest of Iraq has a state-run economy,
so any reduction in funds would have wide ranging
affects upon society from wages to pensions to
paying companies for their work. The Kurds cannot
afford to let this happen, but has little leverage
in the situation. A best-case scenario would be that
this confrontation would lead to some sort of
compromise between the two sides. Unfortunately,
neither is willing to back down, so it’s likely that
more conflict is on the horizon.
SOURCES
Abdul Razaq, Hawar and Ahmed, Hevidar, “Oil Expert:
Baghdad Usurps Oil of Disputed Territories,” Rudaw,
4/9/12
AK News, “Ashti Hawrami: we plan to sell natural gas
directly to Turkey,” 7/3/12
- “Govt. to employ 17,000 people in 2012,” 6/23/12
Aswat al-Iraq, “smuggling oil from Kurdistan waste
of national wealth,” 4/17/12
Brosk, Raman, “Any attempt to deduct Kurdistan’s
budget is “collective” punishment, says Kurdish
Blocs Coalition,” AK News, 5/3/12
- “Shahrestani should focus on paying dues not
making threats,” AK News, 4/3/12
Daoud, Hussein Ali, “Iraqi Federal Government Plans
To Lower Kurdish Oil Payouts,” Al-Hayat, 7/4/12
Hadi, Hemn, “Kurdistan starts trucking exports of
oil to Turkey,” AK News, 7/7/12
Hafidh, Hassan, “Iraq Says Kurdish Oil Exports to
Turkey Are Illegal,” Wall Street Journal, 7/9/12
International Crisis Group, “Iraq And The Kurds: The
High-Stakes Hydrocarbons Gambit,” 4/19/12
Jamal, Sangar, “Iraqi Kurdish state budget passes –
eight months late, against strong opposition,”
Niqash, 7/12/12
Natali, Denise, “Baghdad and Erbil Clash Over Oil,”
Al Monitor, 6/5/12
National Iraqi News Agency, “Ankara refuses Iraq’s
request to stop importing oil from Kurdistan,”
7/17/12
- “Nechirvan Barzani, Erdogan discuss exporting,
refining oil, opening two border outlets,” 6/6/12
Reuters, “UPDATE 1-Turkey importing crude from
N.Iraq in road tankers,” 7/13/12
Rudaw, “Maliki Angers Kurdish Leaders by Accusing
Them of “Smuggling Oil,”” 7/17/12
Sayfadin, Dilshad, “Two committees formed for
solving Iraq and Kurdistan Region’s oil disputes,”
AK News, 7/16/12
Sowell, Kirk, “Inside Iraqi Politics No. 36,”
4/18/12
Van Heuvelen, Ben, “KRG claims right to independent
crude exports,” Iraq Oil Report, 5/10/12
Al-Wannan, Jaafar, “Deputy PM: Kurdistan didn’t
fulfill its oil export obligations,” AK News, 4/2/12
- “Finalizing oil bill will resolve Erbil-Baghdad
tension,” AK News, 4/3/12
Yeranian, Edward, “Iraq’s Kurdistan Region Halts Oil
Exports to Baghdad,” Voice of America, 4/2/12
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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