Could Baghdad-Erbil end Iraq's protracted oil dispute?

BAGHDAD — Iraq's federal authorities and the cash-strapped Kurdish regional government (KRG) have relaunched talks over longstanding oil and budget disputes, but observers are sceptical they will reach a genuine diplomatic reset.

Here are a few questions and answers to clarify the complex issue. 

What's the dispute?

Ties between Baghdad and Erbil have long been strained, amid federal fears the energy-rich Kurdish autonomous region would seek independence. 

They plunged sharply in 2014 when the KRG began exporting oil directly to Turkey, taking advantage of the chaos sparked by the Daesh group's onslaught. 

Under a deal mediated by then-oil minister Adel Abdul Mahdi, the KRG agreed to export oil through Iraq's State Oil Marketing Company (SOMO) in exchange for resuming the receipt of its share of the federal budget. 

But it has never been fully implemented, with Erbil demanding larger budget allocations and both sides trading accusations over unfulfilled terms.

The relationship soured even further when Kurds voted overwhelmingly in favour of secession in 2017.

What's the current state of play? 

Iraq's 2019 budget stipulates the KRG must export 250,000 barrels per day of oil through SOMO and hand other crude revenues to Baghdad in exchange for around 12 per cent of the budget, or $8.2 billion.

In a first, the budget stipulates Baghdad will pay KRG's salaries regardless of whether other terms are honoured.

Baghdad has been paying those salaries but not the rest of the allocation because the KRG has continued directly exporting up to 500,000 bpd to Turkey.

In July, the KRG’s new prime minister, Masrour Barzani, met Adel Abdul Mahdi, now premier of Iraq, to form technical committees to tackle the disputes.

“Barzani was almost in a rush, which is a good sign,” said an Iraqi official with knowledge of the file. 

Why does Iraqi Kurdistan want talks? 

The main reason appears to be a looming economic crisis: Barzani said the region was $14 billion in debt, but the real number could be double that, experts estimate. 

The KRG has a bloated public sector, budgeting a record $8.9 billion in 2019 for some 1.2 million state employees, many of whom are suspected of being “ghost workers”. 

It will earn a net estimate of $3.5 billion in oil sales this year and is set to receive $4.6 billion from Baghdad in salary payments, according to the federal budget. 

The gap leaves the region in “dire straits”, forcing it to postpone public salary payments by several months, said Ahmad Tabaqchali of the Sulaymaniyah-based Institute of Regional and International Studies, who carried out a comprehensive study of the budget dispute.

“The oil issue needs to be resolved because that’s killing the KRG’s economy,” said Sarkawt Shamsaddin, an Iraqi MP who hails from the Kurdish region and follows the file. 

“People aren’t sure by the end of the month if they’re getting paid. It affects salaries, investments, and more,” he added. 

The KRG is optimistic, Shamsaddin said, as Abdul Mahdi is “sympathetic and has a history of dealing with the Kurds”.

What about federal authorities? 

For his part, Abdul Mahdi hopes a lasting agreement could grant him more solid political footing than the tenuous parliamentary alliance that brought him to power last year.

“One of Abdel Mahdi’s natural allies may be the KRG,” said Tabaqchali. 

“He knows he can’t depend on the two rival factions. He needs to secure the third leg of the stool,” he said.

Could there be a real reset? 

Despite apparent good will, the differences may be far too entrenched and even existential for a genuine compromise.

“There’s a basis for dialogue, but there’s no decision to actually resolve the issue,” a government source in the disputed territory of Kirkuk told AFP. 

“It’s a national cause, full of political disputes between all sides, plus regional and international interference.”

Stakeholders include global energy companies, the Organisation of the Petroleum Exporting Countries, and allied states like the US, whose officials have urged Baghdad and Erbil to reconcile. 

But Ruba Husari, an analyst at the Iraq Oil Forum, said talks were at “a dead-end”. 

“Any new agreement would only be temporary and suffer the same flaws as its predecessor,” she told AFP.

On the one hand, she said, the KRG fiercely rejects federal control of its borders, oil or revenue.

Meanwhile, “Baghdad does not speak in one language to the Kurds and does not have a state policy,” Husari said.

Even if Abdul Mahdi negotiated a deal, he will struggle to convince his parliamentary opponents to endorse it as many MPs have slammed him for being too lenient towards the KRG.