Kurdistan’s Finances Hurting over Oil Row with Baghdad

The Kurdish economy is facing some of its worst problems in years as Baghdad has halted funding to the regional government due to the ongoing oil feud, according to an article from Reuters. Kurdistan has vowed to export oil on its own terms through a pipeline to Turkey, but the Iraqi central government maintains that Kurdistan is violating the law. Having failed to come to a compromise, Kurdistan has moved forward with its attempts to sell oil outside of Iraqi control. This prompted Baghdad to cut off funds to Kurdistan’s regional government, which is supposed to account for 17% of the national budget.

In January, the central government only gave Kurdistan 566 billion dinars, less than half of what it paid out last year on a monthly basis. Baghdad has insisted that it will only restore funding if Kurdistan brings its oil exports under the aegis of the national government. "The equation is simple: you take 17 percent of the wealth, you hand over the oil you have," Prime Minister Nuri al-Maliki told France-24 television last week, according to Reuters. But Kurdistan has already sent one million barrels of oil to Turkey. The oil remains in storage – Turkey is waiting for the two parties to resolve their political conflict before it lets the oil to be exported.

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The 2014 budget calls for Kurdistan to export 400,000 barrels of oil per day through Iraq’s state-owned oil company. If Kurdistan falls short of that quota, revenues from the central government will be deducted accordingly. However, it must be done under the control of the central government. “The Kurdish people did not make all these sacrifices in order to be subjected to oppression and despotic rule once again,” said Kurdish President Masoud Barzani, alluding to oppression of Kurdistan by Saddam Hussein.

The two sides will likely maintain their hardened positions over the next few weeks as Iraq is in the midst of election season and neither side wants to give any ground.

By Charles Kennedy of Oilprice.com