The government in Baghdad and Iraq's semi-autonomous Kurdish regional leadership have agreed on a deal under which the Kurds may export oil, ending a dispute between the two that has divided the war-scarred country.
The agreement, effective Jan. 1, allows the Kurdish Regional Government (KRG) to export 250,000 barrels of oil per day. Also, the province of Kirkuk, beset by attacks from Islamic State militants, also known as ISIS, can export 300,000 barrels a day. The oil would be piped to the Turkish Mediterranean port of Ceyhan under the authority of SOMO, Iraq's State Organization for Marketing Oil.
The deal appears to be beneficial to both sides, who have been at odds over the degree of autonomy for residents of Iraq's predominantly Kurdish north. To Baghdad's benefit, it ensures more control by Iraq over how the Kurds market their oil, especially by involving SOMO in the deal.
Related: Kurdistan And Baghdad Make Interim Oil Deal
As for the KRG, it can now sell oil from its lands without interference from Baghdad, Abdel Qadr Mohammed, a Kurdish member of the Iraqi parliament's Finance Committee, told The Wall Street Journal on Dec. 2. Iraq also would resume sharing 17 percent of its budget with the Kurdish regional government, he said.
Those payments were suspended earlier this year to punish Kurds for selling their oil without Baghdad's permission. In 2013 the share amounted to about $12 billion, Iraqi Finance Minister Hoshyar Zebari told The Associated Press.
Besides resuming its payment of a share of the Iraqi budget, Iraq's Defense Ministry will make monthly payments to the Kurds' Peshmerga militia for training and arms as they fight off ISIS, a Sunni Muslim insurgency, according to Kawa Mohammed Mawloud, a Kurdish member of Iraq's parliament.
Since Baghdad suspended its budget payments to the Kurds, the KRG has argued that the money was essential to help the Peshmerga resist growing attacks in its territory from ISIS, as well as to maintain the region's infrastructure and pay public employees in the region.
Related: Islamic State Looks To Mediterranean To Continue Oil Operations
Since Haider al-Abadi became prime minister in September, Kurdish officials have pressed for a deal allowing them more autonomy. If such an arrangement wasn't completed by the end of the year, they said, Kurds would boycott his government.
The deal demonstrates a new national unity in Iraq under al-Abadi, who succeeded Nouri al-Maliki. Both men are Shia Muslims, but al-Maliki's eight years in power were marked by sectarian discord and a crumbling security infrastructure. Al-Abadi can't take all the credit, though. This new-found unity also was forged by the rise of ISIS, whose threat to Iraq became too great to ignore.
Despite this relatively upbeat news, there's also a downside. As soon as the deal was reported, oil prices dropped again in both London and New York because of the arrival of more crude on the market, adding to the glut that's existed for nearly the past six months.
By Andy Tully of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com More