The halt in oil exports has reduced Kurdistan Region’s already strained budget to near zero as public sector workers begin to feel the strain. With no clear signs of resumption yet, the KRG’s energy advisor urges Baghdad to resume the oil flow because “it has adverse financial implications for both sides.”
The resumption of oil exports from the Kurdistan Region of Iraq (KRI) was expected earlier this month following the Erbil-Baghdad deal on April 4 to restart the flow through the Ceyhan port in Turkey. However, nearly a month after the agreement, few signs indicate that the pipelines will come back online soon.
The deal states that KRI oil must be marketed through Iraq’s state oil firm, SOMO, due to Turkey’s decision to halt the export of the region’s oil on March 25 following an arbitration ruling. The International Chamber of Commerce in Paris ruled in favor of the Iraqi government against Turkey and ordered Ankara to pay $1.5 billion after the Turkish government exported the region’s oil from 2014-2018 without Baghdad’s consent.
Hunar Jamal, the spokesperson for the Ministry of Finance and Economy of the Kurdistan Regional Government (KRG), told NRT English that, prior to the suspension, they were receiving a monthly sum of 740 billion Iraqi Dinars (around $525m) in oil revenues from the KRG’s Ministry of Natural Resources. However, he said that they did not receive any funds for April and indicated the KRG now faces the prospect of an unprecedented default.
“We have nothing in our pocket so far to pay the public salaries, and there have been no direct negotiations since the agreement was made on April 4,” but he expressed hope for positive developments “in the upcoming week.”
The spokesperson emphasized the urgent need for additional negotiations with Baghdad regarding the financial entitlements for April. He stressed that they require financial entitlements, whether in the form of a loan or cash advances, to cover Kurdistan’s public sector salaries.
He maintains that they have not been informed of any reasons for the delays and that the responsibility lies with Baghdad.
Iraq and the KRG are heavily dependent on oil sales, and the overwhelming majority of public finances arrive in the form of petrodollars.
Iraqi Oil Minister Hayyan Abdul Ghani revealed on Friday that the resumption of oil exports will be announced “in the coming days”. Abdul Ghani told the Iraqi News Agency that “the central government has reached the final stages of implementing the agreement with Erbil on the resumption of oil exports from the Kurdistan region.” He added that “the oil marketing company that took care of the process of receiving and exporting oil from the region is now in the process of signing contracts with companies that buy oil.”
Bewar Khansi, Advisor to the Prime Minister of the Kurdistan Regional Government on Energy Affairs, told official KDP media “if Baghdad and Erbil fail to expedite the export of oil from the Kurdistan Region, they stand to lose more than $40 million per day.”
“The people of Iraq and the Kurdistan Region suffer a great loss every day due to the delay,” he said but expects “both sides to work seriously to address this issue and start anew, for the good of all”.
“Iraq will lose at least $40 million a day at today’s prices due to the suspensions, which means that the Iraqi government will lose more than $1 billion in the 2023 budget within a month,” he said, explaining that “it will increase the budget deficit.”
Khansi mentioned that “the Kurdistan Regional Government’s duty was to secure an agreement with the Federal Iraqi Government, fulfil its obligations, and establish the export of the region’s oil through Iraq’s state-owned crude marketing company SOMO. The remaining task involves the Iraqi Federal Government and Turkey working together expeditiously to facilitate the timely transportation of oil to the Kurdistan Region.”
According to reports from Kurdistan24, a media channel affiliated with the KRG Prime Minister Masrour Barzani, a delegation from the Kurdistan Region and Baghdad is expected to visit Turkey in the near future. The report also mentioned that there has been progress in the talks between Baghdad and Turkey, citing undisclosed sources.
On the other hand, the chair of the US House of Representatives Foreign Affairs Committee has called on the Biden administration to pressure Baghdad to allow the resumption of Kurdish oil exports.
Michael McCaul said in a tweet that “I am deeply concerned Baghdad still isn’t allowing the resumption of oil exports from the Kurdistan region. A pause in these exports is a win for the Iranian regime. The administration must apply pressure to address this threat to stability & energy security in the region.”
Turkey also presented counterclaims in the arbitration court, encompassing matters such as the pipeline’s limited capacity and outstanding transportation fees dating back several decades. Consequently, the court granted Turkey an award of nearly $600 million, according to a Western source speaking to Middle East Eye. According to Reuters, Turkey is not willing to restart the flow until a second arbitration case is resolved, which covers the period from 2018 to 2022.
This article has been amended to correct an error regarding the monthly figures received by the KRG’s finance ministry from the Ministry of Natural Resources.