ERBIL, Kurdistan Region - Over five months last year, Erbil handed over 11.8 million barrels of oil to Baghdad, the Kurdistan Regional Government’s (KRG) Finance Minister Awat Shekh Janab said on Saturday.
Janab said that nine out of 14 oil fields are currently operating in the Kurdistan Region and they have produced over 45 million barrels of oil since April 2023. Of that, 11.8 million barrels went to Baghdad between June 25 and December 1, 2023.
The minister sat down with journalists to brief them about the latest developments in disputes between Erbil and Baghdad, salaries of the Region’s civil servants, and the issues of internal revenue and oil exports.
The Kurdistan Region’s oil sector has been a source of dispute between Erbil and Baghdad for years. Following a Paris-based court ruling in favor of Iraq against Turkey, the Kurdistan Region’s oil exports through the Turkey-Iraq pipeline were halted in March 2023.
Ankara, Erbil, and Baghdad have had negotiations about restarting the exports, but fees paid to the oil producers remains a sticking point. In November, Iraqi Oil Minister Hayyan Abdul-Ghani told Rudaw that both Erbil and Baghdad are working on amending the Region’s contracts with the International Oil Companies (IOCs) to bring them in line with the Iraqi constitution.
Abdul-Ghani said he discussed the KRG’s contracts with IOC’s during his meetings with Kurdish officials and that the KRG’s natural resources ministry presented the details of the contracts.
While labeling the KRG oil contracts as not “good,” Janab stressed that the Kurdistan Region needs to have its own oil industry. “I support having our own oil industry, which is a constitutional and legal right, and before this new Iraqi government was formed, we had an oil industry,” he said.
The IOCs and the KRG are bound by Production Sharing Contracts, which Abdul-Ghani noted violate the Iraqi constitution. The Iraqi government grants licenses under Profit Sharing Contracts.
Under the Kurdistan Region’s Production Sharing Contracts, the IOCs cover the entire cost of production while the KRG receives the lion’s share of the profits from successful projects.
The Kurdish minister said that they stopped giving oil to Baghdad after the Iraqi government did not cover any of the production and transportation expenses.
“Of the 11.8 million barrels sent to Iraq, the cost of production and transportation of a single barrel was not paid by Iraq. They took it all for free, so we stopped it,” he said.
Iraq’s budget law obliges the KRG to sell 400,000 barrels of crude oil through the federal oil marketing body and if the suspension of exports continues, Iraq will take Kurdish oil for its internal use.
Last month, the Iraqi Federal Supreme Court ruled that the Kurdistan Region must give all its oil and non-oil revenues to the Iraqi government and ordered Baghdad to pay the salaries of the KRG’s employees.
KRG’s payroll
Janab said they have reached an agreement with Baghdad that should see Erbil receive a full transfer of funds it needs to pay its public sector workers.
The Iraqi Federal Supreme Court’s ruling last month ordered the KRG to submit a breakdown of its monthly payroll to the federal finance ministry so that Baghdad could start covering the salaries. The ruling also instructs the Kurdish government to open accounts for its employees at state-owned banks.
Earlier this month, the federal finance ministry announced that it had begun sending funds to the KRG to cover salaries for the month of February, but the Region’s security forces, including the Peshmerga, are not among the beneficiaries. The KRG decided not to pay out any salaries until Baghdad sends the full payment, including for the security forces, leaving all its civil servants unpaid for the month of February.
Janab said that they have now resolved the problem.
"We agreed five days ago to create a special code for the security forces and now we have sent the codes to Baghdad. We are now waiting for the money to start distributing salaries,” he said.
Without oil revenues, the KRG is unable to cover its own payroll. In January, the Iraqi government agreed to pay the KRG 618 billion dinars monthly to cover the salaries. The KRG, however, has said that it needs over 900 billion dinars monthly and has to rely on domestic revenues to cover the rest of the wages.
Janab said that domestic revenues cannot cover the wage deficit.
According to the minister, the domestic revenue of the Kurdistan Region is around 300 to 350 billion dinars. Around 180 billion dinars was used to make up for the shortfall in the salaries, and 60 billion dinars for the government’s allowance.
“The other 100 billion dinar has been spent on investment and operational costs, medicines, electricity, and many other things,” Janab said.
The minister said that Erbil will start distributing salaries once Baghdad pays the remaining wages and that none of the ministers in the cabinet support separating the payments for civil and military employees.
"Most of them [ministers] said that people need salaries during Ramadan, but when it came to whether civilian and military salaries can be separated, no one voted to separate them," he said.
Civil servants in the Kurdistan Region still receive their monthly wages in cash. In line with its digitalization campaign, the KRG in October launched the “My Account” initiative aimed at digitizing the banking sector. As part of this project, civil servants would see their salaries deposited into their bank accounts rather than receiving cash. Out of more than a million civil servants, only 220,000 employees have so far opened bank accounts and only around 100,000 have received their bank cards.
Baghdad and Erbil were instructed by the court to facilitate “localization” of salary payments by having employees open accounts at financial institutions recognized by the Central Bank of Iraq (CBI).
The Iraqi government has refused to work with the KRG’s My Account initiative and insists on using state-owned banks. Janab said that there is a misunderstanding about how My Account works.
“The My Account project is not a bank. There is misinformation and misunderstanding about this issue. My Account is a project for localization. The difference with the localization in Iraq is that the system we use in My Account includes 19 other services with localization,” Janab said, adding that five CBI-accredited banks have taken part in the initiative.
Janab said that My Account was launched after gaining the approval of the Iraqi prime minister and the CBI.
The finance minister also noted that there is a double standard in the Iraqi government’s treatment of the My Account project. Rasheed and Rafidain banks, which the Iraqi government wants to deal with, are accredited by the central bank just as the five banks involved in the My Account project are.
“Why can they do it in Baghdad, but not in the Kurdistan Region?” he said.
“Deep state” runs Iraq
The KRG finance minister said that Iraq is run by what he called “the deep state,” which makes the decisions while the politicians are not the “real actors,” but tools used to implement policies of the “deep state.”
Janab said that if the KRG can reach a political agreement with Baghdad and the “deep state,” then all other issues will be resolved.
“If the agreement fails, we will go back to square one. That is, we will go back to the stage of whether the Kurdistan Region has legitimacy or not," Janab said.
A series of rulings by Iraq’s top court in recent years, including about upcoming parliamentary elections, have been criticized by Kurdish officials as detrimental to the Kurdistan Region’s political entity and have sparked concerns over the future of the Region’s semi-autonomous status.
Updated at 10:52 pm
