Iraq's Kurdistan Regional Government (KRG) will not hand over 250,000 b/d of its physical crude to state-owned marketer Somo under a new agreement reached between Baghdad and Erbil.
The 2021 draft budget stated that the KRG must hand over 250,000 b/d of its crude to Somo in order to receive its share of the federal budget — a clause that has long been a point of contention between Baghdad and Erbil.
But the KRG is unable to transfer this crude to Somo for export as it has already sold its marketing rights to five trading firms against loans it has been receiving since 2014, an Iraqi oil source said. The ministry of finance is therefore calculating the KRG's oil revenues to be deducted from its share of the 2021 budget, the source added.
KRG oil export revenues have totaled just over $4bn so far this year, according to Argus estimates, around half of year-ago levels. The KRG produces around 450,000 b/d of crude, with exports having averaged around 415,000 b/d so far this year.
"The Kurdistan region exports its oil at prices that are less than Somo oil by $5/bl to $7/bl," finance minister Ali Allawi said, adding that 2021 budget — which is being discussed by the cabinet today — could be sent to parliament for approval within a week.
Negotiations between Erbil and Baghdad to resolve the dispute have taken place over the past two weeks. This, coupled with plans by the government to devalue the Iraqi dinar have delayed the approval of the 2021 draft budget required to kick-start much-needed economic reform.
