Iraq Draft Budget Intensifies KRG Oil Export Row

Source: Reuters 1/15/2014, Location: Middle East

Iraqi Kurdish ministers walked out of a cabinet session in protest at the country's draft 2014 budget, further complicating a feud over the autonomous region's plans to export crude via a new pipeline to Turkey.

The Kurdistan Regional Government (KRG) said last week that crude had begun to flow through the pipeline, and exports were on track to start at the end of January, inviting bidders to register with the Kurdistan Oil Marketing Organisation (KOMO).

Baghdad rejected that as a violation of the constitution and reiterated that Iraq's State Oil Marketing Organisation (SOMO) had exclusive rights to sell crude from Kurdistan and the rest of the country.

The draft budget requires the Kurds to export 400,000 barrels per day (bpd) -- well above the region's current export capacity -- and says Baghdad will deduct any shortfall from the 17 percent share of state revenues to which they are entitled.

The budget has yet to be voted on by parliament and could undergo some changes, but Kurdish lawmakers said the draft sent the wrong signal ahead of planned negotiations over the long-running oil revenue dispute.

"It's certainly a negative message Baghdad is sending by adopting the budget without agreement from the KRG," said lawmaker Rawaz Khoshnaw. "The Iraqi government should have given more time for talks and negotiation with the KRG."

Kurdish members of parliament boycotted last year's budget, but it passed nonetheless.

A delegation led by Kurdish Prime Minister Nechirvan Barzani was due to visit Baghdad for talks to ease the dispute, which is rooted in disagreement over how to exploit Iraq's vast oil resources and share the proceeds.

Kurdistan used to export crude to Turkey through a pipeline controlled by Baghdad, but stopped the flow one year ago in response to the central government's withholding of payments to oil companies operating in the northern enclave.

Baghdad said it would not pay because the KRG had failed to meet an export target of 250,000 bpd.

Since then, the Kurds have been trucking smaller quantities of crude to Turkey and collecting the revenues directly, whilst laying their own independent pipeline, which was completed late last year.

Industry sources put current export capacity at around 255,000 bpd and do not expect that figure to reach 400,000 bpd until the end of this year or early 2015.

Iraqi Prime Minister Nuri al-Maliki said the government had long since prepared the budget, estimated at 174.6 trillion dinars ($150.12 billion), blaming the Kurds for holding it up.

He said the region's missed export targets had cost Iraq $9 billion in lost revenue in recent years.

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