Iraq’s government has reached a temporary agreement with authorities in the Kurdish region to end a dispute over oil exports and budget payments to the semi-autonomous region.
Under the deal, the Kurds will be allowed to sell 300,000 barrels per day (bpd) to Turkey from Kirkuk via a pipeline running through their territory, in addition to 250,000 bpd from the region’s own fields.
The crude will be sold by Iraq’s state oil marketing organisation (SOMO), representing a compromise by the Kurds, who have long insisted the constitution entitles them to sell oil on their own terms.
In return, Baghdad will resume payments to the Kurds of 17 percent share of the national budget, and will disburse $1bn towards salaries and equipment of the Kurdish peshmerga forces, who are fighting the Islamic State in Iraq and the Levant (ISIL) in the north.
The Kurds have suffered a financial crisis since the federal government cut funding early this year as punishment for their move to export oil independently.
The agreement will help Iraq increase oil exports at a time when its budget is strained by low oil prices and the cost of financing the war against ISIL fighters who control much of the country. It will last at least for the budget year if neither side defaults.
“It needs some technical work which starts immediately by the KRG,” Iraqi Finance Minister Hoshiyar Zebari told the Reuters news agency, describing the deal as a win-win for both sides.
A source in the Kurdistan Regional Government (KRG) said the region will sell 250,000 bpd of oil produced in areas under its control to SOMO at Ceyhan but would be free to sell anything produced over and above that amount.
That could mark a significant boost for the region, which has said it plans to export as much as 1 million bpd by the end of next year, but has faced long-running opposition from Baghdad to exporting its own crude.
The Kurdish government will also help to link the Kirkuk oil fields to its pipeline to Turkey because the original pipeline has been destroyed and is currently under ISIL control.
US Deputy Assistant Secretary of State for Iraq Brett McGurk called the deal an “important breakthrough” in a Twitter post.
Important breakthrough in Baghdad today b/w Government of Iraq and Kurdistan Regional Government on oil exports and revenue sharing. #winwin
— Brett McGurk (@brett_mcgurk) December 2, 2014
Iraqi Kurdistan began independently exporting crude to Ceyhan in May, drawing the ire of Baghdad, which claims sole authority to export oil from the country.