The semiautonomous Kurdistan Regional Government (KRG) in northern Iraq has escalated its direct oil sales beyond what's permitted by an agreement with Baghdad in order to cope with rising debts incurred because of what it calls budget cuts by Iraq's central government.
In Erbil, the KRG report on its oil sales in June said it delivered an average of 571,021 barrels of oil per day, or a monthly total of 17,130,639 barrels, via pipeline to the Turkish Mediterranean seaport of Ceyhan, and that it delivered an average of 150,000 barrels per day to Iraq's federal State Oil Marketing Co.
The 2015 Federal Budget Law that the KRG reached with Baghdad in December 2014 limits the Kurds to export no more than 250,000 barrels of oil per day through Turkey. In return, the Baghdad government would pay the KRG $500 million a month to buy an additional 150,000 barrels of Kurdish oil.
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Nevertheless, a KRG statement issued on July 6 said, "In 2015, the difficult economic situation facing the region has been exacerbated by the partial payments made to the KRG by the federal government."
In its report on June production, issued July 2, the KRG's Ministry of Natural Resources said it independently sold more oil last month because of "significant debt backlog arising from the budget cuts of 2014 imposed by the federal government, and the need to pay down debts accumulated in 2014 from pre-payments for oil sales."
The KRG says it has significant expenses, and so far it has sought to meet them with local and international loans. Much of its budget supports both Kurdish and Iraqi forces that have been fighting the Islamic militant group that calls itself the Islamic State, also known as ISIS or ISIL, which has been extremely active in Iraq's Kurdish north.
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Despite its differences with Baghdad, as well as the recent spike in independent oil sales, the KRG says it is still fully committed to the budget law. "[The KRG] will continue to work with its counterparts in Baghdad to reach a resolution on all the outstanding issues of oil and gas," the KRG report said.
Still, the KRG Regional Council for Oil and Gas met June 17 with representatives of the five political parties in the Kurdish government and agreed that under the current circumstances, the KRG would have to stray from its deal with Baghdad, at least for now.
"If the federal government does not abide by the Federal Budget Law, the KRG will be obliged to pursue other legal solutions to settle Kurdistan Region's financial difficulties and provide the Region's people with security and other basic necessities."
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As a result, the 2015 Federal Budget Law is at risk of failure because the KRG is ignoring its responsibility to supply the contracted amount of oil to Iraq's State Oil Marketing Co., according to a report by Verisk Maplecroft, a risk consultant group based in Bath, England.
"The prospect for a revival in the oil revenue-sharing agreement between Baghdad and Erbil will remain limited for the short term at least," the company's principal regional analyst, Jordan Perry, said in a statement.
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