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Kurdistan To Cut Out Baghdad, Pay Oil Companies On Its Own

The attack by Kurdish PKK rebels on two oil and gas pipelines in Turkey has ripped up a two-year ceasefire between the PKK and Turkey.

That threatens to not only destabilize an already violent region, but it also has injected new uncertainty into the oil operations of producers in northern Iraq and damaged the main source of revenue for the semiautonomous region of Kurdistan.

Kurdistan is already suffocating from a financial noose as federal funds from Baghdad have been cut off. The Iraqi central government and the Kurdish Regional Government (KRG) had a delicate pact that saw Kurdish oil exported under government control, in exchange for a steady flow of national revenues to the KRG. Related: Top 6 Myths Driving Oil Prices Down

The Iraqi government has been unable to hold up its end of the bargain, resulting in the KRG finding it difficult to pay public sector staff and even its security forces. It has also led to the KRG being unable to meet its obligations to private oil companies producing oil within its territories. The international oil companies (IOCs) have been forced to continue to operate without being paid. The inability for Kurdistan to receive federal payment for its oil exports led to the KRG moving to export oil on its own.

Now, the KRG just announced that beginning in September that it would start reimbursing IOCs, using the revenues collected from exports. Related: Buffet’s Solar “Insurance” Coup In Nevada

The “KRG acknowledges and appreciates the economic contribution to the Kurdistan Region made by the producing IOCs and their success in raising oil export from Kurdistan to record levels,” the KRG wrote in a press release.

The KRG says that it will not be able to fully repay IOCs, but will ramp up payments over time as exports increase. Related: A Reality Check For U.S. Natural Gas Ambitions

“Therefore, from September 2015 onwards, the KRG will on a monthly basis allocate a portion of the revenue from its direct crude oil sales to the producing IOCs, to cover their ongoing expenses. Furthermore, as export rises in early 2016, the KRG envisages making additional revenue available to IOCs to enable them to begin to catch up on the past receivables due under their production sharing contracts.”

The PKK attack on the pipeline will cost $250 million to the KRG, and the KRG said in a separate statement that “The people of Kurdistan will hold the thieves and saboteurs and those supporting them to account for all the hardships they cause.”

By Charles Kennedy of Oilprice.com

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