Perennial disputes over the Iraqi federal budget between the Kurdistan Regional Government (KRG) and Baghdad are almost expected. According to the Iraqi constitution, the Kurdistan Region is entitled to a 17% share, but Kurds argue this is never the true figure.
It was hardly surprising therefore that the Iraqi cabinet recently passed a budget bill in spite of Kurdish withdrawal and rejection. This scenario is no different to the previous year when the cabinet again approved the budget without the consent of the Kurds, before it was later approved in parliament.
The 2014 bill sets the KRG a lofty target of 400,000 barrels per day and insists that all revenues are sent to Baghdad, threatening to cut the KRG share of the federal budget otherwise.
On the surface, Baghdad is continuing in its ethos of calling the shots, setting the expectations and a threatening rhetoric against the Kurds. However, the 2014 budget is drafted and passed with the new Ankara-Erbil oil contracts and new independent Kurdish pipelines firmly in mind.
Baghdad has been ratcheting the rhetoric against both Kurdistan and Ankara in recent weeks with Abdul Kareem Luaibi, Iraqi Oil Minister, even stating that the government was preparing legal action against Turkey and would blacklist companies implicating in such agreement without the consent of Baghdad.
Baghdad has already summoned Turkish consul in Baghdad to voice their displeasure and accused Turkey of preventing Iraqi oil ministry representatives of supervising exports at Ceyhan.
Luaibi further threatened to boycott Turkish companies and cancel contracts if oil exports went ahead. Iraqi Prime Minister Nuri al-Maliki had already threatened to cut Kurdistan’s share of the federal budget if oil exports via Turkey went ahead.
Exports from Kurdistan in recent years have been stop-start to say the least owed to frequent disputes with Baghdad over payment of expenses to oil companies and share of revenues.
The current budget dispute may be along familiar lines but is certainly against a fresh backdrop. Kurdistan has new options and new leverage to use against the government. Its capacity from new oil pipelines are set to rapidly increase and before long Kurdistan could receive a lot more from their own revenue sources than Baghdad could ever give via the 17% share.
This new arrow in the Kurdish bow empowers the Kurds to have control over the destiny. KRG deputy finance minister, Rashid Tahir, warned that “action begets reaction; if Baghdad cuts the budget then KRG…the Kurdish leadership will make their own decision.”
Exports from crude through the new pipeline were on track to start by the end of month and KRG were inviting bidders to register with Kurdistan Oil Marketing Organisation and not the State Oil Marketing Organisation as demanded by Baghdad.
What would KRG do if Baghdad cut their share of the budget, failed to pay Peshmerga salaries or amounts due to foreign oil companies? Simple – they deduct owed amounts from revenues set to go to Baghdad.
It remains to be seen how Turkey would react to prospect of lawsuits from Baghdad, but Turkey is already neck deep in Kurdistan with billions of dollars of trade and is not about to abandon the KRG. It knew the drawbacks of upsetting Baghdad, strategic repercussions and is aware of the hand afforded to the Kurds with the new ventures.
However, growing economic, political and strategic ties with Kurdistan is win-win for Turkey. Ankara realises that ultimately the independence dream of Kurdistan cannot be held-back or ignored forever, but it serves to gain, not lose from the Kurdish national renaissance.