Erbil, Baghdad relations complicate further

Iraq's finance ministry has said on Monday that it began paying the salaries of Region's civil servants in Iraq's semiautonomous Kurdistan region for February, in compliance with a recent ruling by the country's top court. But a resignation by a Kurdish judge from the court ushers in further complications for relations between Erbil and Baghdad.

"Based on the directives of the prime minister and the approval of the minister of finance… the ministry announced the transfer of salaries of Kurdistan region's civilian employees... as part of the financial allocations for February 2024," the ministry said in a statement.

Meanwhile, a Kurdish judge of the federal court Abdulrahman Zebari today announced his resignation in protest of the courts recent "hostile" rulings. In a press conference, Zebari expressed his concerns that the court's decisions were undermining the principles of the federal system, particularly affecting the rights of the Kurdistan Region. The court comprises of nine principal members, of which two are Kurds, and four reserve.

The federal court on 21 February ruled that responsibility for paying the Kurdistan Regional Government's (KRG) civil servants will shift from Erbil to Baghdad, with the sum to be deducted from Iraqi Kurdistan's budget share. It also ordered the KRG to hand over all oil and non-oil revenues to Baghdad. The court decisions, in effect, gave Baghdad further control over the KRG finances.

In the budget law that was passed in June, the KRG is required to deliver 400,000 b/d of crude to Iraq's storage facilities at Ceyhan in Turkey, with Baghdad's state-owned Somo holding the marketing rights. If oil cannot be exported through Ceyhan or other designated ports, as has been the case since late March, it must be redirected for domestic refining, including refineries in the country's north.

In return, the KRG has been allocated 12.6pc of the Iraqi budget, to be paid through monthly transfers. With northern Iraq crude exports remained shut since March 2023 a result of an international court ruling, Erbil claims it is unable to honor such commitment. Meanwhile, international oil companies (IOCs) operating in Erbil have resorted to selling their crude production "locally" and at major discounts but it remains unclear how much is being produced in the KRG's territory.

The ruling Kurdistan Democratic Party (KDP) said on 22 February that the "decisions are contrary to the principles of federalism and the principle of separation of powers enshrined in the Iraqi constitution."

Relations between Baghdad and Erbil have seen complications since 2014 when the KRG began independently selling crude via exports through the Iraq-Turkey pipeline [ITP], with Baghdad contesting the legality of the move. But the relation particularly saw further strain after an arbitration court at the Paris-based International Chamber of Commerce ruled Ankara had breached a 1973 agreement with Iraq by allowing crude marketed by the KRG to be exported without Baghdad's consent.

Baghdad's federal government, with the help of multiple federal court rulings, has managed to downgrade Kurdistan region's autonomy over both its finances and energy sector. The court's ruling in February 2022 overturned an existing law governing Kurdish oil and gas exports, and upheld Baghdad's request that all KRG production-sharing contracts be placed under federal oil ministry oversight.

The judgment rendered unconstitutional the KRG's own 2007 oil and gas law — which has provided the basis for numerous production-sharing contracts with international investors — and raised questions over the future of the KRG's active contracts.

IOCs operating in the Kurdistan region continue to request US help to persuade the federal government in Baghdad to resume crude exports from the north of the country. US vice-president Kamala Harris on 16 February reiterated President Biden's invitation to Iraq's prime minister Mohammed Shia al-Sudani to visit the White House. The Association of the Petroleum Industry of Kurdistan (Apikur) is betting on US mediation during al-Sudani's visit to restart crude exports from the Kurdistan region. Washington and Baghad have begun talks on ending the US-led military coalition in Iraq.

By Bachar Halabi