Erbil-Baghdad deal halted by KRG's errors

Economy 12:27 PM - 2023-04-17

Kurdistan Region and Iraqi flag on the background.

The Kurdistan Regional Government (KRG) made mistakes when signing oil contracts, and the biggest mistake was giving the right to dispose of the Kurdistan oil pipeline to KAR Company. As a result, the oil agreement between the KRG and the Iraqi government, which was recently concluded in ceremonies held in Baghdad's capital, is facing obstacles.

According to Ali Hama Salih, former chairman of the Natural Resources Committee in the Kurdistan Parliament, the Iraqi government will not pay an exorbitant charge for the pipelines transporting oil to the Turkish port of Ceyhan. This pipeline was established by Kar Company for 40% and Turkish Botaş Company for 60% on the Turkish side, while at that time the KRG could construct this pipeline with ease.

"In 2017, the KRG sold the Turkish side's share to Rosneft for $1.7 billion, and we became the lessors of the pipeline carrying our oil," he said. "If we count 2021, we see that we have paid $830 million in rent for the pipeline carrying oil, and this is what the federal government rejects and considers to be a large amount."

The Iraqi government will not pay the rent for the Kurdistan Region's oil pipelines

The KRG sold the Kurdistan Region's oil pipelines to the KAR company, which belongs to the Kurdistan Democratic Party (KDP).

"The Iraqi government will not pay the rent of the Kurdistan Region's oil pipeline, while the rent is given to KAR Company, which is a partisan company, and the KRG signed a contract with it in 2010," Ali Hama Salih, a former chairman of the Natural Resources Committee in the Kurdistan Parliament, told PUKMEDIA.

"Oil companies are another issue," Hama Salih said. "In the past, 56% of oil revenues went to oil companies, and Iraq considers this amount to be a waste of public resources because the budget allocated about two trillion dinars for oil companies and about 1.4 trillion dinars for oil pipelines."

A solution must be found for the KRG and Iraqi government

Now is the time for the KRG to find a solution so that Iraq can process oil in its own domestic refineries if the issue with Turkey is not resolved.

"This amount is less than in 2021 and 2022, and firms are claiming their entitlements," Hama Salih says, "which is another issue that will arise in the future and must be addressed."

"The Iraqi Council of Ministers will meet this week; therefore, it is critical to find a solution and prepare an alternative that will allow Iraq to refine oil from the Kurdistan Region using domestic refineries in the event that the pipeline issue and the Turkey-Iraq issue are not resolved," he added.

The Iraqi constitution puts oil revenues at the service of the public service

The Iraqi government wants oil to be known as a public right protected by the constitution.

This issue has now strained relations between Baghdad and Erbil, effectively halting the agreement between Iraq and the Kurdish Region.

"According to Article 111 of Iraq's permanent constitution, the management of the oil industry and natural resources is the state’s responsibility, not the private sector," Rebwar Mohammed Amin, an expert in oil contracts, told PUKMEDIA.

"The Iraqi government will not permit any oil pipeline to be monopolized by the private sector, individuals, or third-party companies," Mohammed said. "Therefore, the Iraqi government wants this issue to be central and for the entire Iraqi people, including the Kurdistan Region." "The private sector cannot be a part of the revenue that belongs to the public."

"The dispute between Erbil and Baghdad is over public rights because the oil in the Kurdistan Region was not used for public service.  Iraq is unhappy with the previous system of exporting oil from the Kurdistan Region and wants oil to be regarded as a public right," he added.

The export of crude oil from the Kurdistan Region via a pipeline owned by corporations, individuals, and private parties is against the Iraqi constitution. The Iraqi government insists that oil revenues are a public and national concern and should not be placed under the control of individuals and privately affiliated companies, which has temporarily halted the agreement between Erbil and Baghdad. In the meantime, the Iraqi budget bill for 2023 has undergone its first reading and is awaiting approval.



PUKMEDIA