Iraq 2014 Budget will Collapse without Kurdish Oil Income

Haider al-Abadi, the head of the Iraqi parliament’s treasury committee, told Reuters that unless the northern Kurdistan region pays oil export revenue to the national treasury in Baghdad this year, the projected 2014 budget will collapse.

If the Kurdish Regional Government (KRG) once again refuses to pay the oil revenue owed then the only available option left to Baghdad would be to halt all state spending, which amounts to about 17% of the whole country, in the region.

This news was announced during a month that has seen the conflict between Erbil and Baghdad intensify after the KRG began to export oil to Turkey via a new pipeline, completely outside of the central government’s control. Last week, in response, Abdul Kareem Luaibi, the Iraqi oil minister, threatened to seek legal action over against any foreign entity involved in the “smuggling” of Iraqi oil out of Kurdistan.

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Abadi explained that state spending was rising sharply due to increases in pensions, public sector wages, child benefits, and student allowances, and that the draft budget for 2014 would have a deficit of about 21 trillion Iraqi dinars ($18 billion). This deficit assumes that the KRG will pay revenue earned from oil exports of 400,000 barrels a day, even though current exports are only at 255,000 barrels a day. If the KRG pays nothing then the deficit will be untenable and collapse.

In 2012 the Kurds exported 61,000 barrels a day via a pipeline controlled by Baghdad, with revenues earned going straight to the central government, however last year the Kurds began to export their oil independently via trucks and ceased to pay oil export revenue.

Abadi warned that Kurdistan risked losing its cut of state spending. “They are not contributing, so why should they get something out of it? At the moment we have a deficit of 21 trillion. If you add 15 to 16 trillion to it (the amount expected to be lost if the KRG doesn’t pay its oil export revenue), the budget will collapse.”

Abadi stated that the new budget must be passed before the Iraqi parliament is dissolved in preparation for elections on the 30th of April, warning that it would very hard to gather the minimum number of 163 members needed out of the total 325 during an election campaign. He also accused the Kurds of trying to delay the talks and drag them out so that the decision will not be made until after the election, by which point the KRG will already of been able to pocket a large sum of its oil export revenues whilst still receiving its share of state spending from Baghdad.

By. James Burgess of Oilprice.com