Iraq oil revenue deal with Kurdish Regional Government expected soon

'We need a few weeks to work on it in council, then we will send it to the parliament for a vote,' said Baha Al Araji, Iraq’s deputy prime minister, on the sidelines of the World Economic Forum in Jordan.

Above, the Bai Hassan oilfield northwest of Kirkuk. UAE companies operating in Iraq are hopeful that the impasse could be broken. Ako Rasheed / Reuters

DEAD SEA, JORDAN // A comprehensive deal over how Iraq’s oil output and revenue is managed – a crucial step to make progress on the political front – should be settled in a matter of weeks, according to Iraq’s deputy prime minister in charge of energy.

“We need a few weeks to work on it in council, then we will send it to the parliament for a vote,” said Baha Al Araji, Iraq’s deputy prime minister, on the sidelines of the World Economic Forum on the Middle East and North Africa gathering in Jordan. “We have three problems to solve, but they are not technical – they’re political with Kurdistan. In a few weeks a draft will be ready.”

The main dispute centres around the details of how the Kurdish Regional Government handles its exports and how the central government in Baghdad distributes money back to the KRG. There was a deal in place in December, in which the KRG committed to handing over 550,000 barrels of oil per day from areas under its control to Iraq's state oil marketing organisation.

In return, the federal government in Baghdad agreed to allocate 17 per cent of Iraq’s national budget to the Kurdish region, which translated into about US$1 billion per month. But the deal broke down as the parties accused each other of violating the terms of the agreement.

The argument has been both arcane and unnecessary, said Rowsch Nuri Shaways, a Kurd and the deputy prime minister of Iraq, who was also attending the WEF meeting.

“The constitution had become mere ink on paper because we failed to enforce many of its provisions. Had it been implemented the way it should be we would have been able to do away with one key problem” standing in the way of making progress on both the political and security front, Mr Shaways said.

The dispute that arose in the early part of the year seems to have been about the timing of payments as the KRG funded an upgrade of a pipeline that would handle both 250,000 bpd of crude oil from its region and an additional 300,000 bpd from the Kirkuk field, control over which is disputed between the KRG and central government.

Mr Shaways said the KRG was withholding oil promised to the central government because it had not received payments for building the pipeline, while the central government had paid only around a third of the share of federal money it promised to the KRG saying it had not received the promised oil.

“This has taken us steps backward and created new tensions that were pointless,” Mr Shaways said.

UAE companies operating in Iraq were hopeful that the impasse could be broken but also remained sceptical.

"I hope they can reach a deal, but the two sides have seemed to be very far apart on the main issue of dispute," said Patrick Allman-Ward, the chief executive of Dana Gas, which runs one of the main gas projects in the Kurdish region of Iraq.

Dana Gas has been in its own dispute with the KRG over the terms of its contract.

“The main challenge in Iraq now is a financial one,” said Majid Jafar, the chief executive of Crescent Petroleum, the Sharjah-based company that has an equal share in the Dana Gas-run project, plus an affiliated company is involved in several power station project in the south of Iraq. “They have a huge draw on the government budget because of the war with [ISIL] combined with the economic challenges.”

Iraq and Syria dominated the WEF meeting at the Dead Sea because of the security threat to the region from the extremists running rampant across large swathes of the countries. The militants have directly threatened Iraq’s oil infrastructure on the eastern borders of the Kurdish region, disrupting the country’s main oil refinery at Baiji as well as the Kirkuk field.

But while the security issue dominates headlines, senior Iraqi and international figures at the WEF agreed that economic issues were more pressing.

“One of the main obstacles to progress is the absence of facilitating regulation to attract investment,” said Ryan Crocker, the former US ambassador to Iraq. “What investors would like to see is an overhaul of the Iraqi financial system to bring it into the 21st century. It’s something all sects and ethnicities should be able to agree on, and you would see a great deal of private capital come into the country – even with the security situation the way it is now.”

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