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Middle East Amp North Africa
Iraq and Kurds end dispute over oil
From the Financial Times of Tue, 02 Dec 2014 17:44:01 GMT
FILE - In this Saturday, Dec. 5, 2009 file photo, Shiite lawmaker Haider al-Ibadi speaks to the press after an Iraqi Parliament session about the election law in Baghdad, Iraq. On Monday, Aug. 11, 2014, Iraq's largest coalition of Shiite political parties chose the Deputy Parliament Speaker Haider al-Ibadi to be its candidate to lead the government in a major defeat for incumbent Prime Minister Nouri al-Maliki just hours after he declared himself the rightful candidate and put troops on the street. Critics say the Shiite al-Maliki contributed to the crisis by monopolizing power and pursuing a sectarian agenda that alienated the country's Sunni and Kurdish minorities. (AP Photo/Karim Kadim, File)©AP

Haidar al-Abadi, Iraqi prime minister

Iraq’s central government and the autonomous Kurdish regional government finalised a deal over the distribution of oil revenues on Tuesday, resolving many of the differences that have hampered co-operation between the two sides in the ground war against the Islamic State of Iraq and the Levant, or Isis.

The rift erupted under the premiership of Nouri Maliki, former prime minister, and its resolution follows a preliminary arrangement forged several weeks ago. It represents a political victory for Mr Maliki’s successor, Haider al-Abadi, who is under international and domestic pressure to heal ethnic and sectarian rifts. 

The deal helps the oil industry and boosts the economy amid a drop in global energy prices.

“This is a significant development, potentially breaking the longstanding deadlock between the KRG and the federal government,” said Richard Mallinson, geopolitical analyst at Energy Aspects, a London-based consultancy. “This is really important politically and for the development for the Kurdish region’s oil sector. The necessity to secure a deal has increased amid a lower oil price and battered finances of both Baghdad and Erbil.”

In a television interview broadcast on the eve of the announcement, Mr Abadi said it was in both sides’ interest to reach an agreement, however imperfect. “If we insist on being stubborn we will have a lose-lose situation because the Kurds will not be able to export any oil and we will not receive one barrel from the north,” he said. “Even if I win a little bit more than him or the other way around, at least we’re not both losing.”

Under the terms of the deal, the Baghdad government has agreed to send the Kurdistan Regional Government 17 per cent of Iraq’s national budget in monthly stipends, up from 12 per cent during the Maliki era. In exchange, the Kurdish authorities in Erbil are to supply 250,000 barrels of oil per day, drawn from the Kurdistan region, to the central government “for the purpose of export”. The KRG will also export 300,000 b/d drawn from northern fields near the city of Kirkuk to Turkey via a pipeline that runs through Kurdish areas. The Baghdad government will also supply ground troops to buttress Kurdish peshmerga warriors on the front lines against Isis in the north.

If we insist on being stubborn we will have a lose-lose situation because the Kurds will not be able to export any oil and we will not receive one barrel from the north. Even if I win a little bit more than him or the other way around, at least we’re not both losing

- Haider al-Abadi

One Kurdish official said the deal was linked to increasing pressure on Baghdad to make up for revenues lost from its Kirkuk oilfield, which Kurdish forces seized when the Iraqi army withdrew during the Isis offensive this summer.

“Baghdad was in a dilemma,” said the Kurdish official, who asked not to be named because he was not authorised to speak on the issue. “They could either support the KRG with money or deal with the loss of [their Kirkuk oil]. Now they can use the KRG pipeline for oil but, in exchange, we get our rights.”

Left to resolve are billions in budget revenues that have been withheld by Baghdad since the dispute with Erbil erupted at the beginning of 2014.

But the deal will likely smooth the way for greater co-operation between Iraqi and Kurdish ground forces now confronting Isis and earn plaudits from US and other international officials seeking to strengthen a regional coalition to combat the group.

Analysts caution that the deal’s impact may be smaller than the headlines suggest. More than 300,000 b/d is already being exported through the Kurdish pipeline network. But Mr Mallinson said the deal provides a boost for international oil companies operating in the Kurdistan region. “It should be easier for these companies to realise revenues,” he said.

The agreement likely means further downward pressure on the price of oil and highlights the difficulties facing Opec. At a time when some members believe Iraq needs to consider cutting back on supply, the deal means the supply is likely to be higher than expected.

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