Iraqi federal government approves more funds to financially stretched Kurdish region

The three-province region in northern Iraq is reeling after its oil exports through Turkey were halted in March

The Prime Minister of Iraq’s Kurdistan Region Masrour Barzani and Iraqi Prime Minister Mohammed Shia Al Sudani meet in Baghdad. Photo: Iraqi Prime Minister's Office

The Iraqi cabinet approved on Sunday a request by the cash-strapped Kurdish region to release more funds, after the regional government said it is unable to pay its public sector workers.

The three-province region in northern Iraq has been left financially reeling after its solo oil exports through Turkey stopped, following an International Chamber of Commerce ruling that found Ankara in breach of an agreement with Baghdad by allowing the Kurds to sell oil on the international market.

As stated by this year's budget, the region is entitled to 12.67 per cent of the federal budget which stands at 198.91 trillion dinar. In exchange for their share, the Kurds must hand over 400,000 barrels of oil per day to Baghdad.

To work around the budget law, Baghdad has been sending monthly payments to the region as loans. Last week, the federal cabinet approved monthly loans of 500 billion Iraqi dinars ($381.7 million) for September, October and November.

But the KRG says that sum is less than the 906 billion dinars needed for salaries each month. It has asked for a monthly 1.375 trillion dinars from its share of this year's federal budget.

During Sunday's session, the Cabinet increased the amount to 700 billion ID, a government official said.

Kurdistan Regional Government Prime Minister Masrour Barzani thanked Iraqi Prime Minister Mohammed Shia Al Sudani and politicians who were involved in the discussions in Baghdad and Kurdistan.

"This new deal guarantees that our citizens will receive their salaries in full and on time," Mr Barzani said.

Baghdad talks

On Thursday, Mr Barzani led a senior delegation to Baghdad and met Prime Minister Mohammed Shia Al Sudani, President Abdul Latif Rashid and Parliament Speaker Mohammed Al Halbousi as well as other politicians in a bid to convince the federal government to release more funds.

Mr Barzani asked Baghdad to increase the monthly payment to 800 billion dinar as short-term solution, a request that will be discussed by the cabinet, politician Mustafa Sanad said.

As a long-term solution, the Kurds demanded amendments to the federal budget law to ensure the smooth flow of funds to the cash-strapped area, a statement issued by the Kurdish President's office on Thursday said.

After concluding his meetings on Thursday, Mr Barzani said he was "very optimistic that positive decisions will emerge from next week's Iraqi cabinet session". He didn't elaborate.

The arbitration ruling by the ICC, which found that Turkey had broken a 1973 joint agreement with Baghdad, halted about 500,000 barrels of oil per day, some of which was diverted for domestic use.

Baghdad and Ankara are still trying to reach a final deal to resume oil exports.

On resuming oil exports, a top Kurdish official told Bloomberg on Friday that there’s no quick resolution in sight.

The closure of the pipeline to Turkey’s Mediterranean oil terminal of Ceyhan has already cost producers and government coffers about $5 billion, Safeen Dizayee, the foreign minister of the KRG said.

“They had some good meetings and they came out more optimistic,” Mr Dizayee said, adding that the sides were weighing “two ideas” that could resolve the dispute but refused to share details about the ongoing talks. “So hopefully there will be some positive development.”

Asked whether an agreement with Baghdad is imminent, Mr Dizayee said “probably no. But there was an air of optimism. We came back after midnight last night from Baghdad, we seemed to be relatively happy with the meetings, but as they say, the proof is in the pudding.”

The closure of the pipeline, meanwhile, has forced foreign oil companies working in northern Iraq to pare down operations, Mr Dizayee said.

“All of them have slowed down their work because they’re not getting any fees for their operation cost,” Mr Dizayee said. “They’ve been very patient with us. We are not able to pay them. But they’re still there.”