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SCF Mediating to Settle Baghdad-Erbil Oil Disputes

Thursday 10 August 2023
SCF Mediating to Settle Baghdad-Erbil Oil Disputes

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Alwaght- Iraqi Kurdistan region's oil exports case remains controversial and unsettled despite holding a series of meetings between Baghdad and Erbil over the past few years. Driven by this state of uncertainty, a Kurdistan Democratic Party's delegation on Monday visited Baghdad and discussed with Prime Minister Mohammed Shia al-Sudani and the head of Fatah parliamentary block Hadi al-Amiri the disputed case. 

Al-Amiri’s office stated that the meeting, mediated by Shiite Coordination Framework (SCF), discussed the country's latest developments, elections, government performance, and the implementation of service and development programs. 

According to the statement, the two sides addressed the pending issues between the federal government and Erbil as there is a compelling need to embark on dialogue and unifying agenda to beat the challenges and solidify stability based on constitution and national interests. 

“The Party delegation in the meeting emphasized on the legal rights of the region, especially the Maronites. The salaries of the employees should not be tied to anything else, especially that the region has fulfilled all of its obligations to the federal government,” said Pshtiwan Sadiq, the head of the KDP delegation. 

He added that two pacts have already been signed between Baghdad and Erbil; the first one with the political parties constituting this government and the second between Kurdistan region's PM Masrour Barzani and the PM al-Sudani. 

“The meeting was positive and meetings will continue,” Sadiq added. 

This meeting was held while the State Oil Marketing Organization (SOMO) and the Kurdish delegation are also reviewing the draft oil and gas law. Erbil officials said the ball is in the court of the federal government to implement the agreements and pay the region's budget and the salaries of the Peshmerga forces, and to enforce the defense mechanism under article 140 of the constitution. 

Last week, the PM reviewed the latest oil and gas draft bill with Erbil and stressed its passing for some issues that are urgent need of three country. According to the statement of al-Sudani's office, the purpose of this meeting was to refine the final draft of the bill before its approval by the Council of Ministers and its subsequent submission to the Iraqi Parliament. 

"The federal government wants to have complete control over oil and gas in the region through this bill," said Vian Sabri, the representative of the KDP in the parliament. 

Differences over budget and oil sales 

One of the sticking points between Erbil and Baghdad over the past months has been the federal budget. While the PM wants to pass a three-year budget, the Kurdish leaders are strongly against the idea. Hoshyar Zebari, a member of the KDP, describes the three-year budget disastrous to the economy, serving the political parties benefiting from corruption, and an injustice to the autonomous region. He added that this plan will lead to inflation, slump of the national currency, and a failure to run the country financially. 

After months of hemming and hawing, the Iraqi parliament approved in June a $152 billion federal budget for 2023. According to the law, 12.6 percent of this budget is allocated to the Kurdistan region. In recent days, Baghdad paid the monthly share of the region, but Erbil accuses Baghdad of violating the budget and paying less than the determined amount. 

Since 2005, the oil and gas law approval has been one of the main demands of the Kurds before the formation of any government, but so far no agreement has been reached between Baghdad and Erbil. Vian Sabri said that the Kurds are worried that the SCF will not commit to issues they agreed on concerning budget and oil and gas sales before the formation of the government. 

It is noteworthy that the Kurdish parties under agreements with the SCF over government made demands that included review of oil and gas law, implementation of article 140 on disputed areas, allocation of 17 percent of federal budget to Kurdistan region, and allocation of budget to the Peshmerga forces. 

The SCF is committed to fulfillment of anything agreed upon in the government coalition, but is against anything sounding unconstitutional or depriving the other provinces of their financial and oil rights. This approach was highlighted in all meetings with the Kurdish delegations. 

Article 140, which the Kurds insist on, is based on the control of the Kurdish forces over the disputed areas, which the federal government and other ethnic groups have not agreed to. The central government grew further against the article 140 especially after the Kurdistan government held independence referendum in September 2017. 

Although the Kurdistan region is administered autonomously, it must act under the policies of Baghdad in matters related to national power and security. But in recent years, due to the security crises caused by the attacks of the ISIS terrorist group, Baghdad did not pay much attention to Erbil oil and gas sales, and the Kurdish leaders capitalized on this opportunity and earned huge wealth from energy sales. They refused to transfer the revenues to federal government as the law asserts, but with the restoration of relative peace to Iraq, the government pursued this issue through legal channels. 

Baghdad has made many efforts in the past years to gain control over the region's energy resources, and these efforts came into fruition with February 2022 ruling by the Federal Court which declared the oil and gas law of the region illegal. The Federal Court also revoked Erbil oil and gas contracts with foreign companies. 

The Kurdistan region was exporting more than 400,000 barrels of crude oil daily to international markets until this process was blocked in March by a ruling by the Paris-based arbitration court, which ruled in favor of Baghdad and deprived Erbil of oil revenues. Driven by this blockade, leaders of Erbil are trying to get a bigger share of oil revenues through an agreement with Baghdad, because any oil sales by Erbil must now be done under the auspices of central government, and the revenues must be distributed through the government according to the share of each sector. Currently, al-Sudani’s government is equipped with the ruling of Paris Court in addition to the Iraqi Federal Court's ruling, and can impose its terms and demands on Kurdistan at the negotiating table. 

On the other hand, the KDP is not in a good situation locally and has a stark disagreement with its rival Patriotic Union of Kurdistan (PUK) over political matters, which in recent months has resulted in clashes between the representatives of the two parties in the regional parliament and the departure of the PUK’s ministers from the cabinet. Therefore, the government, which is controlled by the KDP, is facing a budget crisis, and if it cannot take funding from the federal government as soon as possible, the wave of criticism from the rivals against the Barzani family will increase, and this issue is on the eve of the provincial elections will prove costly to Erbil leaders. 

Along with talks with the government, the KDP has also filed a lawsuit with the Federal Court. On Monday, the Federal Court ruled in favor of Erbil, saying that two items in the text of the new federal budget law were unconstitutional. However, it rejected appeals by Erbil to eight other items of the new budget. 

One of these items addresses the spending of the Kurdistan region's share with the green light of the PM. The government intends to allocate 70 percent of the revenues of the rise in oil prices to reverse the budget deficit and the remaining 30 percent to the delayed share of the provinces, but Erbil is against this plan. 

While the Kurdistan officials refer to the articles of 112 and 115 on management of oil and gas resources and argue that all the local powers not determined as exclusive to the federal government are powers of the regional government, Baghdad and SOMO refer to article 111 that suggests oil and gas are assets of all Iraqi people and provinces. 

Since 2007, the Kurdistan region has been managing the local oil resources independent of the central government while according to the Federal Court's ruling, the local government of Erbil must transfer all the oil of the region and neighboring areas to central government. Erbil is heavily dependent on oil revenues, and the inability to sell its crude oil would severely impact its economy. 

Baghdad has not managed to pay in time and completely salaries of over 1 million state employees for years. Therefore, should the oil revenues are transferred to the federal treasury, payments to employees will become regular and in time. 

Ambiguity surrounding Baghdad-Erbil difference settlement 

The central government and KDP are seeking a solution to end the crisis, but a clear outlook is not in sight. 

State of Law lawmaker Mohammad al-Shomari says given the provincial elections and the party differences and conflict of views on the oil and gas law inside the SCF and even between the KDP and PUK, the atmosphere is not prepared for passing this law, despite presenting drafts of the law and even holding negotiations about it. Actually, an agreement between the two sides is not unthinkable in the short run. 

Further delay in settlement of dispute between the central government and Erbil on the eve of provincial elections can inflame a new crisis not good for Iraqi security, since this will grant an opportunity to the US to abusively test its chance to realize its failed plans. 


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Iraq Kurdistan Oil Exports Budget Central Government Article 140

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