Peregraf
The Iraqi Parliament has once again postponed the approval of a crucial budget amendment related to the oil exports of the Kurdistan Region. The amendment, which has sparked heated debate, centers around the payment terms for oil production and transportation in the Kurdish-controlled areas.
In a move that has further intensified the ongoing dispute, Iraqi Prime Minister Mohammed Shia' Al Sudani has proposed a new clause demanding that the Kurdistan Regional Government (KRG) hand over its natural gas and oil components to Baghdad. This proposal was sent to the Iraqi Parliament, triggering an impasse that has delayed the budget amendment yet again.
Soran Omar, a Kurdish member of the Iraqi Parliament, confirmed the news to Peregraf. According to Omar, the introduction of this new clause regarding the handover of oil and gas resources has complicated the discussions, leading to the lack of approval for the amendment. He stated, “This new proposal by the Prime Minister has caused problems, and the amendment was not approved as a result.”
The new clause is part of the Iraqi government's efforts to secure control over the oil and gas resources in the Kurdistan Region, which has long been a source of tension between Erbil and Baghdad. While the KRG has maintained its autonomy in managing these resources, the Iraqi government insists on more centralized control as part of its national economic strategy.
The parliamentary session on January 19, 2025, also saw the rejection of a proposal concerning the Kurdistan Region’s oil exports. This proposal aimed to set a provisional payment rate of $16 per barrel for the region's oil production and transportation. The Finance Committee had reviewed the amendment, which would have provided financial relief to the Kurdistan Region, but it was met with strong opposition from Shiite lawmakers.
Omar explained that the vote could not take place because the quorum requirement for legal attendance was not met. Shiite legislators argued that $16 per barrel was an excessive amount compared to the $8 per barrel allocated for oil production in southern Iraq. However, KRG leaders had previously insisted on a higher rate of $26 per barrel due to the elevated costs of oil extraction in the region, leading to the compromise figure of $16.
Escalation of Oil Smuggling Activities
Amidst these political disagreements, there has been a significant increase in oil smuggling activities from the Kurdistan Region to neighboring countries, particularly Iran and Turkey. Following the closure of the official export pipeline in March 2023, a clandestine network has emerged, facilitating the transport of oil via tanker trucks.
Reports indicate that over 1,000 tankers are involved in transporting at least 200,000 barrels of oil daily. This illicit trade is estimated to generate approximately $200 million per month.The oil is sold at significantly reduced prices, ranging between $30 to $40 per barrel, roughly half the global market rate. Despite the substantial revenue generated, the proceeds from these operations are not accounted for in the official coffers of the KRG, raising concerns about transparency and governance.
The smuggling operations have also attracted international attention due to potential violations of sanctions, particularly those imposed by the United States on Iran. The unregulated nature of these transactions poses significant risks, including environmental hazards and the undermining of official economic channels.
Implications for Regional Stability
The deadlock on the budget amendment, coupled with the surge in oil smuggling, has exacerbated the financial crisis in the Kurdistan Region. With official oil revenues suspended and no legal export avenues available, the region faces mounting economic challenges.
Tensions between the Iraqi federal government and the KRG continue to escalate, with implications for both regional stability and the international oil companies operating within the Kurdistan Region.The KRG is under increasing pressure, with lawmakers warning that the unresolved budget issue could lead to further economic difficulties and deepen the rift between Erbil and Baghdad.
Soran Omer have also expressed concern that the failure to pass the budget amendment could lead to the continuation of illicit oil sales, a practice that could undermine the region's economic recovery while depriving its citizens of much-needed revenue. The ongoing standoff between the two sides shows no signs of resolution, leaving the Kurdistan Region in a vulnerable position with little prospect for a swift solution.