Iraq strikes new deal with Kurds on oil exports and salary disputes

Agreement to resume oil exports from Kurdistan could reset strained relationship

Iraq's Kurdish region is to deliver most of its oil to the Iraqi government for $16 a barrel. Reuters

The Iraqi cabinet approved on Thursday a long-anticipated agreement with the semi-autonomous Kurdistan Region that could reset their strained relationship over oil exports and public sector salaries.

According to a statement issued after an extraordinary meeting, the Kurdistan Regional Government will “immediately begin delivering all the crude oil produced from the region’s oilfields” to the state oil marketer SOMO for export.

In return, the Iraqi Ministry of Finance will be “committed” to pay the Kurdish region $16 per barrel, a price set late last year in amendments to the federal budget law and approved by the cabinet, the statement added.

At least 230,000 barrels per day will be handed over to Baghdad out of the region’s current total production of 280,000 barrels per day, it said. The remaining 50,000 barrels will be reserved for local consumption.

“Any further increase in production will be handed over to SOMO,” it said.

As a goodwill gesture and the first step in implementing the deal, the federal Ministry of Finance will release May salaries for public sector employees, pending verification that the oil volumes have been received at the Turkish port of Ceyhan.

The measure aims to bring immediate relief to tens of thousands of public servants in the Kurdish region who have faced months of uncertainty over delayed payments.

Kurdistan will also transfer an initial estimated amount of 120 billion Iraqi dinars ($91.6 million) for May as a share of non-oil income, according to the agreement. A joint team will audit revenue and determine the federal share going forward.

The deal also stipulates that a three-month plan will be launched to complete the process of paying public sector employees' salaries through bank accounts.

The control over the development of natural resources has been one of the thorniest issues since the 2003 US-led invasion that toppled Saddam Hussein and helped the Kurds gain official semi-autonomy.

The Kurds argue that the country’s constitution allows them to sign deals bypassing Baghdad, while the federal authorities maintain this is illegal. That struggle has forced Baghdad at some points to withhold Kurdistan's share in the budget, plunging the region into economic hardships.

In early 2022, the Kurdish region's oil sector suffered a major blow when the Federal Supreme Court ruled that the regional law regulating the industry was unconstitutional. The court demanded it hand over all oil sector activities to Baghdad – including exports.

A year later, an arbitration ruling forced the region's exports through Turkey to halt, cutting off a major source of revenue for Erbil, the capital of the Kurdish region, and leaving it struggling to fulfil salary payments. Throughout that period the two sides failed to reach agreement.