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Charles Kennedy

Charles Kennedy

Charles is a writer for Oilprice.com

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Kurdish Oil Exports Under Threat

The fight against ISIS has taken a turn for the worse in recent weeks, with strategic cities and territory having been captured by the militant group.

To make matters worse, one of the key factions fighting ISIS is running out of cash. The Kurdish Regional Government, a semiautonomous provincial government in northern Iraq, says that its battle against ISIS is weakening due to the failure of the Iraqi government to promptly transfer necessary funds. Related: One Of The Safest Bets In Oil & Gas Right Now

The KRG and Baghdad have long been at odds, as questions over sovereignty, revenue sharing, and oil exports have led to years of political gridlock. The tentative deal reached in December 2014 raised hopes of political progress, but the current standoff over money indicates that the two sides have not entirely resolved their differences.

The deal reached in late 2014 allowed the KRG to export 550,000 barrels per day in exchange for cash. Under the terms, Kurdistan is supposed to receive its portion of the national budget, pegged at 17 percent. But the flow of money has dried up, cutting off salaries to fighters in the peshmerga, Kurdistan’s militia.

Baghdad has responded by saying that the KRG is overestimating how much money is owed.

Without the funds, it will be difficult for the Kurdish forces to keep up the fight against ISIS. The peshmerga has been critical to keeping ISIS from advancing farther than it already has. Related: Seeing Some Success, OPEC Maintains Market Share Strategy

The lack of money could also start affecting oil production in Kurdistan. Several private international companies operate there, but have not received payment from the KRG. The Kurdish government owes a combined $3 billion in back payments to oil companies.

If they are not paid, they could pack up and leave.

“We need to stabilize the payment situation,” Ashti Hawrami, the KRG’s natural resources minister, said on June 9. “We can’t keep saying to oil companies: ‘Give us one more month.’ Eventually this will collapse around us. We need more money.” Related: A Glut For Natural Gas Too?

If oil companies did reduce or stop production, that would only worsen both the KRG’s and Iraq’s budgetary picture.

That in turn could have serious implications for both the fight against ISIS and the health of Iraq’s oil sector over the long-term.

By Charles Kennedy Of Oilprice.com

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  • Baldur Dasche on June 10 2015 said:
    The Kurds have long realized that nature has cursed them with some nasty geography. While sitting on one of the finest sources of easily accessed, light sweet crude, on earth, they have no way to get it to market without relying on the kindess of neighbours, most of whom they've been at war. That logistics problem works in reverse when it comes to food production and the import of needed commodities. it probably explains why the Kurds - a wonderfully unique and resilient people have never made their mark on the place they live.

    So if one can't sell oil other than through an Iraqi or Turkish broker, why bother trying?

    The other problem is the bargain-basement selling price. Pumping more has resulted in receiving less. Somebody should thank the Kurds and Iraqis for doing their bit to destabilize Putin's evil empire. And to provide BIG oil with the largest profit margins they've had in more than a decade.
  • Alan on June 11 2015 said:
    Kurdistan has honoured the agreement but probably Iran and Maliki still want it to fail. From the begening bagdad has always shown flagrant violations of law and constituency.that's why Iraq is in this sectarian civil war. They don't help the 1.7 million refugees that kurdistan is hosting. And bagdad continues to send a third of the budget that was agreed.

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