New oil law likely to be the end of Iraqi Kurdistan’s independence dream / Simon Watkins

A series of legal rulings by Iraq’s Federal Supreme Court (FSC) on 21 February underlined that the planned New Oil Law being worked on by the government of Iraq in Baghdad will be the final agent of change that will end any semblance of independence for Iraqi Kurdistan. And for Western oil companies working in the region, it looks like the future has been cancelled.

To begin with, the FSC ruled that the Kurdistan Regional Government (KRG) must turn over “all oil and non-oil revenues” to Baghdad. This marks the end of any debate over whether the KRG can continue to conduct oil sales independent of the Federal Government Iraq’s (FGI) State Organization for Marketing of Oil (SOMO) – it cannot. And even it managed to arrange channels to do so, it would have to hand over all the money made from the oil sales to the FGI in Baghdad anyway. This effectively returns all financial control of Iraqi Kurdistan back to Iraq’s central government. The FSC added that the FGI, in turn, would be responsible for paying the salaries of public servants in the KRG, with the amount paid to be deduced at source in Baghdad from the KRG’s share. And the KRG must provide monthly, in-depth accounts of every salary that the FGI is paying.
Effectively, this is a much tougher reset of the original ‘budget payments for oil revenues’ deal agreed between the KRG and the FGI back in November 2014, as analysed in full in my new book on the new global oil market order. The deal was that the KRG exported up to 550,000 barrels per day (bpd) of oil from its own fields and Kirkuk via SOMO. In return, Baghdad would send 17 percent of the federal budget after sovereign expenses (around US$500 million at that time) per month in budget payments to the Kurds. This arrangement never functioned properly, with the KRG frequently (and rightly) accusing the FGI of underpaying budget disbursements, and the FGI frequently (and rightly) accusing the KRG of under-delivering oil revenues. The deal was then superseded by an understanding reached between the KRG and the new Iraqi federal government formed in October 2018 and centred on the 2019 national budget bill. This required the FGI to transfer sufficient funds from the budget to pay the salaries of KRG employees along with other financial compensation in exchange for the KRG handing over the export of at least 250,000 bpd of crude oil to SOMO. Again, this arrangement never worked properly either.
However, things became much worse in late 2017 for two reasons. The first reason was that 25 September 2017 saw a non-binding vote on full independence for Iraqi Kurdistan. Independence had been tacitly promised to Iraqi Kurdistan by the U.S. and its allies in exchange for Kurdistan’s fearsome Peshmerga army being the West’s principal boots on the ground in the fight against the then-rampant ISIS. Over 92 percent of voters in the 2017 referendum voted in favour of independence, but shortly after the results were announced, forces from Iraq and Iran (supported as well by Turkey) moved into the Kurdish region and quelled any further moves to make independence a reality. Neither Iraq nor Iraq nor Turkey (all with sizeable Kurdish populations) could tolerate the ramifications of a broader upsurge in the Kurdish independence movement across the region. The second reason was that soon after that, Russia gained control over Iraqi Kurdistan’s oil sector through three key mechanisms also analysed in full in my new book on the new global oil market order.

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