April 03, 2012

Dispute Over Oil Revenues Heighten Tensions in Iraq

A perennial dispute between Baghdad and the Kurdish Regional Government over how to manage Kurdistan’s oil resources is exacerbating tensions between the Iraqi central government and the semi-autonomous Kurdistan region.

Baghdad and Erbil brokered an oil revenue sharing agreement in 2011. The deal allowed the Kurdish Regional Government to export oil to Baghdad, which would then export oil to the international market through Iraq’s main oil exporting body, the State Oil Marketing Organization. Baghdad agreed to share half of the oil revenues with Erbil. However, Baghdad has reportedly failed to make payments for the oil since May 2011. According to one report, “The Kurdish region's Ministry of Natural Resources said Sunday that Baghdad had not made any payments to Kurdistan since May 2011. A ministry statement said that Kurdistan has ‘reluctantly decided to halt oil exports until further notice,’ due to the lack of payment. The region has been shipping about 50,000 barrels a day to Baghdad.” The Wall Street Journal added that “The Kurds say that Baghdad owes them some $1.5 billion,” in back payments.

The revenue sharing dispute is also putting a spotlight on Iran-Iraq tensions.  “Iraq's deputy prime minister for energy, Hussein al-Shahristani, lashed out at Iraq's Kurdistan authorities for halting crude oil exports, accusing them of separately allowing billions of dollars worth of oil-smuggling over its northern borders, mainly to Iran,” The Wall Street Journal reported. "‘Most of these barrels not received but produced by Kurdistan … are being smuggled outside Iraq via the Iranian borders,’ [al-Shahristani] said, adding: ‘This will cause a budget deficit, and our government should act to preserve Iraqi resources.’”

Tensions between Baghdad and Erbil could be a defining feature of Iraqi political stability in 2012 – and beyond. As the Iraqi central government continues to stand solely on its own, how well it manages the country’s oil wealth – and through it, its relationship with other Iraqi factions – could be an indicator of Baghdad’s political longevity.  It is worth watching how this relationship develops and events unfold.