Iraqi oil exports hit a 12-month high in in February, driven by increased shipments from the north of country following a landmark deal between Baghdad and the Kurdistan Regional Government (KRG).

The deal hangs in the balance, however, as the KRG claims it has not received close to its share of budgetary payments, despite making progress in boosting oil exports from northern Iraq.

As part of the deal, Erbil agreed to export crude from the Kirkuk assets, which it seized in June 2014 when Iraqi security forces fled the area, in exchange for receiving 17 per cent of the federal budget.

Despite a drop in exports from the southern fields around Basra in February, overall Iraqi exports increased as volumes out of Kirkuk doubled.

According to the Iraqi Oil Ministry, overall exports reached an average of 2.6 million barrels a day (b/d) in February, increasing from 2.54 million b/d in January. Kirkuk exports rose to 304,000 b/d from 150,000 b/d in the previous month.

The KRG claims to have met 97 per cent of its agreed supply of crude to Baghdad’s State Organisation for the Marketing of Oil (Somo) to Ceyhan during February.

“The KRG, in turn, expects the federal government to honour its obligations under the budget law and to provide the KRG with its legal monthly entitlement to its share of the budget,” the KRG said in statement released on 9 March.

Erbil added that it expected an agreed special allocation for its Peshmerga forces fighting Islamic State in Iraq and Syria (Isis) in northern Iraq.

On 4 March, Iraq Oil Report cited a spokesman from the KRG Finance Ministry claiming that the regional government had received ID250bn ($208m), which is being used to make overdue payments to public sector employees.

However, the KRG claims Baghdad provided the KRG with less than 20 per cent of its share of the budget for January and nothing for February.

Under the agreement signed in November, the KRG has agreed to export an average of 300,000 b/d from the fields in Kirkuk in 2015, in addition to 250,000 b/d of crude from fields in Iraqi Kurdistan.

This was expected to start with 375,000 b/d in the first three months of 2015 and ramp up through the year to average at an annual 550,000 b/d.

Despite the breakthrough agreement, the deal is on shaky ground as long as the KRG controls the Kirkuk fields and does not receive its share of the national budget.

The success or failure of the deal could have deeper consequences with Baghdad and Erbil sharing a precarious partnership in the fight against Isis around Kirkuk and other areas of northern Iraq.