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Baghdad and Kurds reach budget deal

Iraq’s central government and the semi-autonomous Kurdish region reached an agreement on Thursday that allows for the resumption of long-withheld budget transfers for the Kurdish areas, the first sign of breakthrough in a fraught relationship.

Nine months after the former Iraqi government cut budget transfers to the Kurdistan Regional Government over an oil dispute, the new administration in Baghdad agreed to release some $500m in funds for the Kurds’ civil servants salaries.

The deal stipulates the KRG will contribute 150,000 barrels per day of its own oil exports to the federal budget, Safeen Dizayee, the Kurdish government spokesman, confirmed to the FT. It will be rolled over until a more comprehensive agreement is reached.

The deal will come as a relief to the US and other world powers that are pressing for political reconciliation between the Kurds and the central government, as they seek to degrade the Islamic State of Iraq and the Levant, the group known as Isis.

Mr Dizayee said the agreement marked the first step towards resolving the broader oil dispute between the KRG and Baghdad. Negotiations are expected to start soon. “What’s been agreed today is not a final solution. It is a first step towards a comprehensive solution,” he said.

The KRG’s exploitation of its own oil resources has been at the centre of a long-running dispute with the central government. It led the former prime minister, Nouri al-Maliki, to withhold budget transfers to the region earlier this year.

After Isis captured the Iraqi city of Mosul, and the Kurds threatened to secede from Iraq, the US pushed for a new, more conciliatory government that the Kurds have joined.

With at least 45bn barrels in reserves, the KRG has charted its own course, attracting international companies including ExxonMobil, Total SA and Chevron. The conflict over oil reached a climax this year as the KRG prepared to pump oil through a new pipeline that for the first time directly connected the region with Turkey, bypassing federal government control.

The central government says Kurdish exports through the pipeline are illegal under Iraqi law and has launched legal proceedings in the US.

In a recent interview with the FT, Nechirvan Barzani, the prime minister, said that given the KRG’s experience with Baghdad, it would now insist on securing its share of the Iraqi budget through its own oil sales, and was seeking economic independence.

Mr Barzani said that the KRG would also demand the full 17 per cent share of the budget that it is entitled to, rather than the up to 11 per cent that Baghdad provided, after subtracting sovereign expenses.

“We will not give full control of oil sales to Baghdad again. That is not possible,” said Mr Barzani. “We need a mechanism that won’t allow Baghdad to disrupt the budget for the region . . . we would take 17 per cent of the budget.”

Ashti Hawrami, the Kurdistan oil minister, told the FT in a separate interview that the KRG’s oil exports had reached close to 300,000 barrels per day, and they were on track to rise to 500,000 bpd by the first quarter of next year.

Source: Financial Times





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