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MEOG Commentary MEOG
KRG intends to feed oil into Iraqi pipeline next year
Hopes are high that Erbil will finally begin fulfilling its commitment to provide crude shipments via federal Iraqi infrastructure during 2020.
Kurdistan
What:
The Iraqi Oil Minister this week said that recent talks suggest that the Kurdistan Region will begin sending 250,000 bpd of crude to the
State Oil Marketing Organization (SOMO) next year.
Why:
This was due to have commenced in 2017,
as Erbil’s contribution
in exchange for the allocation of its portion of the Iraqi state budget.
What next:
while baghdad continues to face significant challenges amid civil unrest, the Kurdistan Regional Government
is coming under fire for allegations of corrupt practices at the very top of the regime.
IRAqI Oil Minister Thamir al-Ghadhban this week said he expected the Kurdistan Regional Government (KRG) to begin crude deliver- ies through Federal Iraq’s State Oil Marketing Organization (SOMO) next year.
He was quoted by local broadcaster al-Ahd as saying: “The Kurdistan Regional Government is obliged to send no less than 250,000 [barrels per day] bpd to SOMO for it to sell in Ceyhan in Turkey, and the returns go to the federal budget.” Oil production from the Kurdistan Region amounted to 440,000 bpd in October.
During a live TV interview, Al-Ghadhban told SOMO officials “to prepare themselves for receiving 250,000 bpd starting next year, because that’s what I understand from talks.”
He added: “The 2019 federal budget law is very clear about the obligations of both the fed- eral and regional governments.”
Kurdish crude deliveries were due to have begun in 2017 to secure Erbil’s portion of the Iraqi state budget, but no cargoes have yet been sent.
optimism
The Oil Minister’s comments follow growing optimism about a breakthrough between the semi-autonomous regional administration and the federal government.
In late September, Al-Ghadhban said he was hopeful that a deal could be reached between the pair on the state budget in October.
Speaking at an economic and security forum in Baghdad, he told Kurdish media outlet Rudaw: “We are close to reaching an agreement with Erbil regarding oil and the budget ... I hope that we will reach an agreement during the month of October.”
He added that “very detailed” discussions would take place between delegations from the two governments in the weeks following.
The fiscal plan provides for record spending of $111.5bn and projects a $23bn deficit on the basis of assumed exports of 3.88mn bpd at an average sale price of $56 per barrel.
Baghdad cut the KRG’s 17% share of the Iraqi budget altogether in 2014 in retaliation
for Erbil conducting independent oil sales; this led to a financial crisis in the semi-autonomous region. The KRG began receiving a cut of the budget again in 2018, though at a reduced rate of roughly 12%.
Relations between the two administrations have improved since the 2017 Kurdish inde- pendence referendum, which saw Iraqi forces take control of Kurdish oil assets.
Iraq’s 2019 state budget, passed by the National Assembly in January, called for the KRG to allow 250,000 bpd of the territory’s crude to be sold by Iraq’s SOMO at the Turkish port of Ceyhan, with a chunk of the authority’s alloca- tion of federal funds being contingent on this.
This would flow through the Kirkuk-Ceyhan conduit, also known as the Iraq-Turkey Pipeline (ITP).
Growing urgency
In June, Rudaw quoted Bashir Haddad, second Deputy Speaker of the Iraqi Parliament and member of the KDP, as saying that if the KRG failed to meet these obligations, the federal government would “cut a part of the budget for investments and projects proportional to that amount.”
He suggested that the KRG show ‘goodwill’ and ‘commitment’ to Baghdad by shipping oil through SOMO in order to secure its share in the 2020 budget, adding that Kurdistan had failed to fulfil this obligation since the budget was passed.
At that time, Jamal Kochar, a Kurdistan Islamic Union (KIU) MP, was quoted as saying: “If we don’t give anything to [Iraqi Prime Min- ister] Adil Abdul-Mahdi, he will surely not do anything for us in drafting the 2020 budget.”
Kochar suggested sending 100,000 bpd in July, 150,000 bpd in August, 200,000 bpd in September, and then 250,000 bpd during each of October, November and December, in order to ensure Kurdistan’s negotiating position when it comes to discussing the budget for 2020. This has evidently borne little fruit.
Also in June, new Kurdish President Nechir- van Barzani met with Iraqi Prime Minister Adel Abdul Mahdi in Baghdad, agreeing to “resolve
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w w w . N E W S B A S E . c o m Week 47 27•November•2019