Iraqi Kurdistan says it will no longer sell oil via Baghdad

14 October 2015

Comments from the Deputy Prime Minister come after an increase in independent oil sales

  • The Kurdistan Regional Government says it will not sell oil via the national marketing agency Somo
  • It remains open to talks with Baghdad over a new oil sharing deal
  • In September, average oil sales from KRG-controlled territory rose to 620,478 barrels a day

The Kurdistan Regional Government (KRG) is no longer willing to sell oil via Somo, Iraq’s Baghdad-based national marketing agency, according to the KRG’s Deputy Prime Minister Qubad Talabani.

“We always want to solve our issues with Baghdad, but we are not open to giving our oil to Baghdad and have them decide what is our rightful percentage,” said Talabani in an interview with MEED.

“If there is a new deal with Baghdad, we will still sell our oil and we will work out a revenue sharing formula where we give back to Baghdad what we think they are owed.”

Talabani’s comments come after the collapse of an oil sharing deal that was agreed by Baghdad and Erbil in December 2014.

The agreement required the Kurds to sell 550,000 barrels of oil a day (b/d) via Somo, allowing Baghdad to oversee export deals.

In return the KRG was supposed to receive regular payments amounting to 17 per cent of the national budget, as well as $1bn towards salaries and equipment for the Kurdish military.

Under the deal, the Kurds were also permitted to sell oil independently as long as the agreed quota of 550,000 b/d was supplied to Somo.

During 2015 the deal fell apart, with both the KRG and Iraq’s central government accusing each other of not keeping to the terms of the agreement.

Over recent months, Erbil has significantly ramped up independent oil sales while the number of barrels of oil sold per month via Somo has declined.

In September, average oil sales from KRG-controlled territory rose to 620,478 b/d while total barrels sold via Somo hit zero for the first time.

“We have proven we can do this alone. We can get our oil to market. We can generate revenues. We can bring money back into Kurdistan,” said Talabani.

“The relationship with Baghdad has changed [over the last 12 months] because we are no longer dependent on the good will of Baghdad to give us what they think we should get. We are now in charge of our own economy for better or worse.”

Iraqi Kurdistan is struggling to pay public salaries due to an ongoing fiscal crisis. It owes about $3bn to international oil companies as well as several billion dollars to local contractors.

In 2014, the KRG ran a large deficit after Baghdad froze budget payments due to a disagreement over independent oil sales. At the same time, an escalation in the war against the militant group Islamic State in Iraq and Syria (Isis) led to increased spending on defence.

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