Iraq Budget Deepens Dispute Over Kurdish Oil Revenues

Source: The Wall Street Journal 3/8/2013, Location: Middle East

The Iraqi parliament passed a budget for 2013 that allocated to Kurdistan just a fraction of the oil revenue requested by the semi-autonomous region, a move that deepens a dispute that has disrupted oil exports from the north of the country.

The parliament agreed that the Iraqi central government should make $650 million in payments to the Kurdish government, which would be used to pay companies operating in the region for oil exports, said Ibrahim al-Mutlaq, a member of the parliamentary finance committee. The Kurdish government had asked for $3.5 billion, he said.

The budget decision adds to existing tensions between the Kurdish region and Baghdad over oil exploration rights, trade with Turkey and the redevelopment of oil fields in a disputed territory. The dispute over the payment of oil revenues has already led to the suspension of crude oil exports from the Kurdish region since December.

Kurdish lawmakers boycotted the session which led to the passing of the budget, Mr. al-Mutlaq said. Kurdish officials weren't immediately available to comment.

The Kurdish government says the $3.5 billion it requested includes outstanding payments covering all exports between 2010 and 2013. The Baghdad government collects the oil revenues because it controls the export pipeline.

The central government in Baghdad made one payment of around $550 million in October 2012 for the companies operating in Kurdistan, but Iraqi officials later said that they wouldn't pay a second portion of around $300 million because the Kurdistan Regional Government failed to reach an oil production level of 250,000 barrels a day agreed in September 2012.

Iraqi Prime Minister Nouri al-Maliki's bloc in parliament, the State of the Law, is arguing that the Kurds should pay Baghdad for their failure to produce the promised amount since November 2012, Mr. al-Mutlaq said.

The allocation of oil revenues has been a significant sticking point in the Iraqi parliament's vote on the 2013 budget, which is $118.6 billion in total. The vote was delayed many times because lawmakers differed on whether Baghdad should allocate money to companies working in Kurdistan.

The Kurdish government further annoyed Baghdad when it started unilateral exports of more than 15,000 barrels a day of oil and natural gas condensate in trucks to Turkey at the beginning of January 2013. It has pledged to increase these exports gradually and even plans to set up its own pipeline, bypassing the Baghdad-controlled export route.

The two sides are also locked in a dispute over who has the right to award oil exploration licenses in the region. Baghdad considers scores of oil deals signed with companies, including Exxon Mobil Corp. XOM +0.29% (XOM), Total SA FP.FR +0.08% (TOT) and Gazprom Neft GZPFY +0.73% (GZPFY) as null and void because they haven't been approved by the central government. The Kurds argue that they are legal according to the new constitution.

Another war of words broke out in January, when the oil ministry in Baghdad said it was considering signing a contract with BP BP.LN +0.24% PLC (BP) to redevelop the Kirkuk oil field, which is in a disputed territory bordering the Kurdish region.

For more information about related Opportunities and Key Players visit Iraq Oil and Gas Projects

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