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Iraqi Supreme Court Ruling May Reignite Kurdish Oil Dispute

After promising indications that the Iraqi federal government would ease up on its legislative war with the Kurdistan Regional Government (KRG) over the latter's unilateral oil contracts and exports, the Federal Supreme Court delivered a setback Wednesday, ruling budget transfers to the KRG illegal.

The decision comes as Erbil and Baghdad appeared to be close to reaching a deal on the constitution, which would have calmed a long-running feud over the KRG's portion of the federal Iraqi budget, which has been in question due to its independent oil operations.

Oil exports are the KRG's biggest source of revenue, while it also depends on a portion of the federal budget, which remains a point of contention as long as the Kurds are signing unilateral oil contracts and exporting oil to Turkey, bypassing Baghdad's oil marketer.

The Supreme Court decision renders illegal budget transfer orders previously authorized by the government of former prime minister Mustafa al-Kadhimi, putting into question similar budget transfer orders subsequently authorized by the new government under Prime Minister Mohammed Shia al-Sudani.

Reacting to the setback, the KRG said in a statement that the court's new stance represents an "unjust policy and antagonism against the Kurdistan region". 

"This court has not been formed constitutionally and cannot make decisions as a federal court, therefore we reject its decisions and call on the federal government to not act on this decision and abide by the promises made to send the financial entitlements of the Kurdistan Region," the statement read, as carried by Rudaw

In February 2022, a Federal Supreme Court ruled that the KRG oil and gas law was "unconstitutional", setting in motion a series of legal moves designed to force international oil companies to revoke contracts with Erbil and sign new contracts with Baghdad or face legal repercussions. 

With the long-awaited appointment of a new government in Baghdad, with Iraqi Kurdish prime minister al-Sudani at the head of a new cabinet, talks had achieved a detente, and al-Sudani had recently approved a $250 million payment to the KRG for November and December 2022. That payment, though not specifically mentioned by the Supreme Court, is now unlikely to be disbursed. 

By Charles Kennedy for Oilprice.com

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Charles Kennedy

Charles is a writer for Oilprice.com More