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MNR statement highlights Erbil's political conundrum

30 May 2017 16:44 (+01:00 GMT)
MNR statement highlights Erbil's political conundrum

London, 30 May (Argus) — A rare statement from the semi-autonomous Iraqi region of Kurdistan's Ministry of Natural Resources (MNR) highlights improved cooperation with Baghdad but pointedly says there is opposition from some federal officials and political figures to thawing relations.

The statement, issued in the wake of last week's Opec meeting, is in line with a political strategy to keep Baghdad on side for financial aid, while continuing to highlight some differences as a means to unify domestic opinion in Kurdistan, analysts say.

Current Iraqi production is 4.465mn b/d, against an allocated level of 4.35mn b/d under the Opec cuts agreement, according to Baghdad's oil minister Jabbar al-Luaibi. Exports are running at 3.92mn b/d, of which 130,000 is being exported by the Kurdistan Regional Government's (KRG) own account, he said.

Tensions between Baghdad and Erbil were high in in the first quarter, after decisions made by the federal government fuelled long-standing divisions between the Patriotic Union of Kurdistan (PUK), which controls the key oil fields in north Iraq's Kirkuk province, and the Kurdistan Democratic Party (KDP) that runs the KRG. The government in Baghdad decided in February to supply the 100,000 b/d Erbil refinery with 40,000 b/d of crude following shortages of refined products in Kirkuk. PUK officials saw this as a snub that ignored their demands for a new refinery in Kirkuk. The PUK stormed and occupied federal government-owned producer NOC's headquarters on 5 March, and held three days of protests outside NOC facilities in Kirkuk.

Since then, both Baghdad and the KRG have publicly talked up an improvement in cooperation between the two sides. In an interview with Argus last month, al-Luaibi said the government had "ambitious plans to stabilise the north" and that there is a "sort of collaboration between the KRG authorities and the oil ministry".

"There are some differences here and there but not great differences. We hope things will stabilise for the benefit of both sides," he said.

The KRG's oil ministry statement welcomed "recent positive statements by the federal minister of oil Jabbar Ali al-Luaibi about improved relations between the KRG and Baghdad".

It said the KRG "looks forward to hosting the ministry soon for constructive discussions on resolving outstanding issues on oil and gas". And it praised recent discussions with the federal minister of electricity Qassim Mohammed al-Fahadawi regarding the need to provide fuel for power and refined products to help reconstruct Mosul and other liberated areas, following the expected defeat of Islamist group Isis.

An attempt to bridge differences between the two sides is in the KRG's interest, as Baghdad is the short-term solution to its financial crisis. In addition, outwardly visible stability is key for the region's suffering investment framework. The KRG brought in financial services companies Deloitte and E&Y to audit its oil and gas data at the end of last year in an attempt to boost transparency and address public concerns over government corruption, following allegations by opposing political parties. But the ongoing audit process is blamed for a delay in publishing the MNR's monthly reports detailing the KRG's oil exports, consumption, production and revenue. The latest report to be published was for November, before the auditors were brought in. The delay has raised concerns about the auditors' findings as reserves downgrades are announced and production guidance revisited by operators, and companies relinquish exploration blocks.

Despite this, the statement from the KRG's ministry undermines the political rhetoric by highlighting what it calls "contentious and misleading comments regarding the KRG's oil export and sales process" made by Falah al-Amri, director general of Iraq's state-owned marketer Somo.

The statement denied al-Amri's declarations that the KRG sells Kirkuk crude at a discount to the Somo official selling price (OSP), saying the only extra reduction is for the cost of the money for prepayment purchases for its crude.

"Amid the crash in the oil prices, compounded by the illegal budget cuts of 2014 imposed on the KRG by the [previous] Maliki government, and the influx of over one million refugees and internally displaced persons, the KRG was forced to sell oil on a prepayment basis in order to pay salaries and fund its security forces," the statement said.

It added that other deductions from KRG oil export revenues are a result of an increase in shipping and insurance costs caused by Somo's "aggressive and counterproductive campaign of harassment against the legal buyers and shippers of KRG oil".

The MNR highlighted how the revenue from its own oil sales has paid KRG salaries and sustained the Kurdish security forces, or Peshmerga, fighting Isis.

The statement may be part of a political strategy to rally competing factions in Kurdistan in a common cause. At the same time it praises the federal government in order to maintain dialogue, analysts say.

With a referendum on independence for Iraqi Kurdistan possible as soon as later this year, such manouevring may become commonplace. The referendum, organised by the KDP, was previously opposed by a number of political parties including the Iran-backed PUK. Some of the parties have now warmed to the idea while continuing to push for dialogue with Baghdad. But the referendum is still opposed by Iran, Turkey and Syria, which are concerned that the move would resonate with their own Kurdish populations.

Those who oppose the referendum say the KRG should tackle ongoing issues such as the financial crisis. Many do not expect the referendum to take place, arguing that it is an an attempt to distract from pressing domestic issues.

In addition to the friction between the PUK and KDP seen earlier this year, tensions are rising between armed groups battling Isis, predominantly the Popular Mobilisation Units (PMU) and the Kurdish Peshmerga. The two sides are beginning to disagree over access rights to disputed areas near Kurdistan, with the KRG insisting the Peshmerga liberate Kurdish areas in northern Iraq. Elements of the Kurdish Peshmerga have defected to the Iraqi PMU, sources say. This could also be because the PMU is backed by Iran, is allied to Iraq's federal government and is better funded, analysts say. Such tensions will only worsen in post-Isis Iraq and when Mosul is liberated, as Shiite-led Baghdad forces, Sunni Arabs and Kurdish groups will compete to control Nineveh's provincial capital.

Consequently, gaining the financial support of Baghdad while simultaneously unifying fragmented Kurdish groups could be a strategy designed to keep the short-term peace. But, it is also in Baghdad's interest to secure relations between the two sides politically as well as through the oil market in order to unify not just Kurdistan but Iraq as a whole, before it faces the ticking time bomb of control of a liberated Mosul.