Iraq cannot finance its projected 2014 budget deficit unless the northern Kurdistan region pays its oil export revenue into the national treasury - or loses its share of state spending, a senior lawmaker said.
Haider al-Abadi, head of parliament's treasury committee, told Reuters the budget, swollen by extra expenditure, would "collapse" if the state kept paying the autonomous region its 17 percent share even as the Kurds withhold oil export proceeds.
Baghdad's chronic quarrel with Kurdistan over how to manage and share Iraq's energy resources intensified this month when the Kurdish Regional Government (KRG) said oil had begun flowing to Turkey for export via a pipeline outside federal control.
Last week Iraq's oil minister threatened legal action and drastic trade reprisals against Turkey and any foreign companies involved in what he called the "smuggling" of Iraqi oil.
Kurdistan's Prime Minister Nechirvan Barzani arrived in the Iraqi capital on Sunday to pursue talks on an issue that has bedevilled relations between Iraq's Arabs and minority Kurds.
"We go to Baghdad with the intention of closing gaps," KRG spokesman Safeen Dizayee said before the talks, which he said would focus on increasing Kurdistan's oil output and a mechanism for marketing its exports.
Abadi said the draft budget projected a deficit of about 21 trillion Iraqi dinars ($18 billion), assuming the Kurds paid the treasury the revenue from budgeted oil exports of 400,000 barrels per day - a target industry sources say far exceeds Kurdistan's current export capacity of around 255,000 bpd.
To Baghdad's fury, the Kurds handed over no oil export revenue last year because of an unresolved dispute over the payment of oil companies operating in the northern region.
For much of 2013 the Kurds were trucking what industry sources estimated was up to 60,000 bpd of crude and condensates to Turkey, while the independent pipeline was being completed.
In 2012, the Kurds exported 61,000 bpd of crude via the Baghdad-controlled pipeline to Turkey, so the revenue went automatically to the central government.
Baghdad complained at the time that the Kurds should have exported more than double this amount, however.
Abadi said state spending had risen sharply in the draft budget due to increases in pensions and the minimum public sector wage, child benefits and student allowances.
Echoing remarks made in the past week by Prime Minister Nuri al-Maliki and Oil Minister Abdul Kareem Luaibi, Abadi said the central government would have to cut the Kurds' budget share.
"They are not contributing, so why should they get something out of it" he asked in an interview. "At the moment we have a deficit of 21 trillion. If you add 15 to 16 trillion to it, the budget will collapse," he said, estimating the additional shortfall if no Kurdish oil revenue is handed over.
Abadi, who is also a senior member of Maliki's Shi'ite Islamist Dawa party, said time was running out for the budget to be passed before parliament is dissolved ahead of an election on April 30. He said it would be hard to muster a quorum of 163 of the assembly's 325 members during an electoral campaign.
Kurdish and Sunni Muslim opposition lawmakers would stay away, as would MPs busy campaigning or those without a motive to turn up because they were not running for re-election, he said.
Abadi accused the Kurds of seeking to prolong oil talks until after the poll to entrench a fait accompli whereby they pocket their own revenue from oil "officially" piped to Turkey and still receive their 17 percent share of the federal budget.
Kurdish officials say that in practice Kurdistan receives closer to 10 percent of the national budget.
Even if the Kurds paid over notional oil revenues of 17 or 18 trillion dinars from exports of 400,000 bpd, Abadi said, Baghdad would only just be able to bridge its 2014 budget gap.
He said the withholding of Kurdistan's earnings also violated a U.N. Security Council resolution under which all Iraqi oil export proceeds must be paid into a U.N.-approved account in New York from which five percent must be deducted to pay war reparations to Kuwait for Iraq's 1990 invasion.