Iraq’s central government and the country’s semi-autonomous Kurdish region reached a deal on oil sales Tuesday that officials in Baghdad are hailing as a major victory for the new administration of Prime Minister Haider al Abadi.
The deal potentially could resolve a long-standing dispute that earlier this year had the Kurds threatening to schedule a vote on independence, a move that would have possibly led to the breakup of the country at the same time that the Islamic State had seized much of northern and central Iraq.
Iraqi Finance Minister Hoshyar Zebari, a Kurd, called the deal a clear victory for the Abadi government.
“It’s good for all of Iraq,” he said. “It will enhance the sense of partnership between the Kurds and the rest of Iraq, and it has removed a great deal of mistrust between the two sides because of past practices and confrontational attitudes.”
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Under Abadi’s predecessor, former Prime Minister Nouri al Maliki, the two sides were at loggerheads over Kurdish oil sales, which bypassed the central government, and the central government’s failure to provide money to the Kurdistan Regional Government for its operations, leaving thousands of Kurdistan government employees without salaries.
Under the agreement, Iraq’s oil marketing organization will sell 550,000 barrels of Kurdish oil per day, including 300,000 from oilfields near Kirkuk that the Kurds took control of after the Islamic State routed Iraqi troops from the area. That represents a compromise for the Kurds, who previously had wanted the right to sell the Kurdish-controlled oil themselves.
In return, the Kurdish region will receive 17 percent of Iraq’s national budget.
Zebari said he believes Tuesday’s deal will make it easier for Iraq’s Parliament to pass next year’s budget by adding additional revenue from the sale of Kurdish oil, but he admitted he’s concerned for the country’s long-term economic health.
The 40 percent plunge in the world price of oil since the summer has shaken Iraq’s oil-dependent economy, forcing the government to cut its proposed 2015 budget and delay its ratification by Parliament.
“We have serious difficulties and challenges, really, because of our outdated economic policies,” Zebari said.
Fellow Iraqi politicians were more blunt. “I don’t think people understand that, economically, Iraq is really on the verge of financial bankruptcy,” explained one longtime member of Parliament who spoke on condition of anonymity in order to speak freely.
The details of Tuesday’s arrangement, analysts said, highlight Baghdad’s growing weakness amid the plunge in oil prices.
“It looks like the financial pressure has really impacted Baghdad,” said Sam Morris, an Irbil-based analyst with MERI, a think tank with ties to the Kurdistan government. He noted that falling oil prices could position the region to receive more money from its promised 17 percent of the country’s budget than the allocated 550,000 barrels of oil will generate on the market.
Kurdish Prime Minister Nechirvan Barzani “managed to negotiate a very positive deal for the KRG,” Morris said.
Zebari said such an assessment is purely speculative. “Both of them needed it,” he said, “because both sides are experiencing difficulties.”