Under domestic financial pressure, the Kurdistan Regional Government (KRG) in northern Iraq has accepted a deal from Baghdad that would have the Kurds halt unilateral oil exports and in return the Iraqi central government would pay its public employee salaries.
The deal was extended earlier this week by Iraqi Prime Minister Haider Al Abadi, and the KRG is struggling to come up with the $747 million it needs each month to pay its 400,000 public employees on its payroll. Significantly, this payroll includes the Peshmerga fighting forces that make up the key bulwark against the Islamic State (ISIS) in northern Iraq.
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The KRG controls some 12 billion barrels of oil on its territory, with an upside potential of 60 billion barrels, and estimated reserves of some 45 billion barrels, along with 22 trillion cubic feet of natural gas. Kurdish authorities expect that they will export 1.65 million barrels of oil and 10 billion cubic feet of natural gas this year, but they've been bypassing Baghdad by exporting crude to global markets via Turkey-ever since a deal with Baghdad on oil and revenue-sharing collapsed last year.
The KRG made over $3.94 billion last year from direct oil export sales, compared with $1.98 billion it received from the federal government over the first half of the year. Related: Downturn Now Hitting The Refining Sector
A relative safe-haven by comparison to the rest of Iraq, the KRG territory is now facing instability and unpaid wages are adding the uncertainty. Some public employees have gone up to five months without wages. Earlier this month, KRG officials said they would cut government employee salaries by 15 to 75 percent.
Like previous agreements between Baghdad and Erbil, though, this deal may not be realized in the end. Baghdad has failed to follow through on a number of earlier budget deals that would have ended the standoff over Kurdish oil.
On Tuesday, the international community pledged more support at the Munich Security Conference for the Kurdistan Region and its Peshmerga forces.
By Charles Kennedy of Oilprice.com
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Charles is a writer for Oilprice.com More