Iraqi success generating revenue / political analysis Deal

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Conscious / Iraqi success generating revenue / political analysis Deal

10/12/2014 01:15 | Number of Views: 429

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Conscious / Michael Knights - The Washington Institute for Studies

In the first of December / December, the Iraqi federal government conducted and the "KRG" three rounds of talks in Baghdad on the sharing of oil revenues in the budget for 2015. The talks came the culmination of three months of intensive talks between the federal leaders and Kurdish leaders that followed more than a year of talks between the two sides with the support of the United States. The agreement also came against the backdrop of a very difficult financial circumstances in Iraq caused by falling oil prices. It is noteworthy that the arrangements that resulted from the talks is foremost a deal based on "revenue generation" rather than a standing agreement on the "revenue sharing" because he has carefully formulated to generate new revenue for both Baghdad and the Kurds.

The draft agreement between Baghdad and the "KRG"

In most years since the fall of Saddam Hussein's regime, the Iraqi federal government has traditionally put a model for revenue sharing with the "Kurdistan Regional Government" - the regional entity, which includes three of Iraq's eighteen provinces. According to United Nations estimates that indicate that Kurds make up 17 percent of Iraq's population, the Kurds receive 17 percent of the net proceeds of the Iraqi state (total revenue minus expenses such as sovereign military payments and payments to the federal government contractors oil). As a result, the Kurds of Iraq's share of total revenue, in fact she was about 11 percent, and was down year after year with the increasing expenses sovereign. In the framework of nitpick on the financial level of mutual between Baghdad and Erbil over revenue sharing, the Kurds began oil production and export independently. So Baghdad sought to force the Kurds to the inclusion of this oil in the federal export system administered by the State Oil Marketing Company "Sumo", and that by including penal provisions in the budgets for two years in 2013 and 2014, provides for the withholding Kurdish monthly budget transfers in the case had not received the company "Sumo" specified quantities of oil.

In early 2014, the government of former Prime Minister Nuri al-Maliki has taken measures to implement such a threat, prompting the Kurds to the brink of bankruptcy, which in turn led to an increase in the independent oil exports to 300 thousand barrels per day in November 2014. It is noteworthy that this independent path of Sales Oil has achieved great success in 2014. It is between six and twenty of crude oil by the "KRG" exported by the first of November Alsarich shipments, was purchased twenty-five shipment and the conversion price to bank accounts managed by the Kurds.Issued "KRG" At the moment about 300 thousand barrels per day of crude oil through a series of pipelines and exports by truck. This means that, after deducting the various expenses, including the costs of contractors, could be for "Kurdistan Regional Government" must now get a monthly revenue of about $ 380 million, compared to the monthly requirements for salaries of about $ 670 million.

Under the reconciliation talks, the US-backed, Baghdad paved and "KRG" their way slowly and carefully towards an agreement for revenue sharing through most of last year. Detection deal was almost in March / March 2014 to allow in which "the Kurdistan Regional Government," the marketing of its oil is a common condition that Baghdad increase the share of Kurdistan of Iraq's total revenue through the deductible amount of $ 14 billion from the federal costs of oil from the Iraqi sovereign expenses. Then, in November 2014 the "KRG" to activate the initiative to build confidence has been planned for a long time, which provides the "KRG" 150 thousand barrels of oil per day for the company, "Sumo" in the Turkish port of Ceyhan last fifteen days of the month of November in exchange for a payment of $ 500 million offer once to "the Kurdistan Regional Government." Nor must the new agreement, which was concluded in recent days to be drafted in the draft Iraqi budget law for 2015, and provide strong incentives for both Baghdad and the "Kurdistan Regional Government" to re-integrate their activities for the production and export of oil.

· On what you will get Baghdad. Deal project includes a commitment to "Kurdistan Regional Government" to provide 250 thousand barrels per day for export oil, "the Kurdistan Regional Government" to the Oil Marketing Company ("SOMO") in the port of Ceyhan, sells whereby the company "Sumo" oil using the same mechanisms used for the sale of the following oil Basra or anywhere else in the parts run by the federal government in Iraq. You also agree "KRG" to facilitate the export company "Sumo" process 300 thousand barrels of oil per day from Kirkuk, which is under the management of the federal government's oil fields, as it can not be for the oil to reach the export ports across federal land due to insecurity, due to destroy the infrastructure of the pipeline between Kirkuk and Mosul. Instead, it may be exporting Kirkuk oil to Turkey via a pipeline network "KRG" safe interior. These new export group of 550 thousand barrels per day will slightly lower revenue than a billion dollars a month to Baghdad. And as a goodwill gesture, offering "the Kurdistan Regional Government," the company has already "Sumo" of 150 thousand barrels per day for export at the port of Ceyhan oil "Kurdistan Regional Government" for the remainder of 2014.

· On what you will get Kurdistan. In reciprocal gesture to show good faith, Baghdad would provide for "the Kurdistan Regional Government," a new batch of $ 500 million in December / December 2014 to ease pressure on the budget in the near term. Throughout 2015, the Kurds will see the re-completion of their monthly budget transfers from Baghdad. (If oil prices allowed the obtaining of Iraq on the "net worth" $ 60 a barrel - Oooaoa net proceeds after production costs - and if Iraqi exports within the expected range, which is about three million barrels per day, the Kurds will get about $ 600 million per month). Kurds were not able to reach the end of the sovereign expenses or significantly reduced, but they will for the first time at about $ 100 million in salaries monthly for their fighters from the troops, "peshmerga" item from the Iraqi Ministry of Defense budget, in addition to their monthly transfers from the federal budget. In addition to these items agreed upon, it is highly probable that keeps "KRG" implicit control over all oil production in the territory of which more than 250 thousand barrels per day, which Stnqlh a day for the company, "Sumo". This surplus is currently 150 thousand barrels per day, and can be up to 250 thousand barrels per day by the second half of 2015. After meeting the domestic refining requirements for approximately 120 thousand barrels per day, the Kurds independently will export the rest and achieve more revenue this way, note that part of it will be used to pay amounts owed to contractors with them and who are not covered by Federal clause oil costs.

US support for the implementation process

After that reached to the second agreement of December / December between Iraqi Prime Minister Haider al-Abadi, the Prime Minister in the "KRG" Barzani, through the vital assistance provided by the Iraqi Oil Minister Adel Abdul-Mahdi, now needs the agreement to obtain approval Iraqi political system and the institutionalization in the coming budget year 2015. Significant achievements and key challenges include the following:

 

· Formulate 2015 budget often lies in the details, and now must use a formula in the writing of the new budget law by a special committee charged with drafting legislation. In order to reach a better chance of success, the budget you need to give Iraqi politicians the greatest possible freedom of action to achieve the agreed goals on the volume of oil. This may mean gently addressed issues such as the use of "Kurdistan Regional Government" of excess oil production, which exceeds 250 thousand barrels per day. As noted previously have budgets years 2013 and 2014 are included similar provisions in the criminal case of non-delivery "KRG" oil. New efforts, which include the adoption of strict language in the budget for 2015 to eject the initiative off course and may lead. It has all the parties involved in the current agreement voluntarily given to the joint economic need and paid largely by considerations of local Iraqi, not international pressure, in contrast to the previous revenue sharing initiatives. And can therefore assume that the two sides emphasized the positive effects and demonstrate good faith without resorting to the threat of punishment. Overall, the United States must submit their mediation efforts offices during the drafting process aimed at resolving misunderstandings and directing all parties to keep the budget language of positive language that does not overload the details.

· Approval of the budget. Must be given the budget law in the approval of a simple majority of the Iraqi Council of Representatives, which includes 328 seats. As the United States must support all efforts by President Abadi government to reach a consensus about the budget. Fifteen provinces are outside the "Kurdistan Regional Government" will be a potential source of opposition, which receive services through the federal ministries and receive direct transfers per capita is much lower than those received by "the Kurdistan Regional Government of the Federal Government." (Erbil and funded their own ministries through monthly transfers). The oil-producing provinces such as Basra was resented in particular show as it produces oil but can not any part of it directly sell as do the Kurds. So should Americans and other international actors officials reassure those provinces that they will support their demands to receive royalties petrodollars, any buyer the value of oil in US dollars, in the budget, foreign direct investment and will help in the development of project management capabilities at the provincial level. Similarly, the United States can provide advice and assistance to emerging plans for the Iraqi government in order to establish commercial and industrial funded by the "CBI" development banks in order to provide loans to local companies in the provinces.

· Maintaining the agreement effective. You will need any deal between Baghdad and the "Kurdistan Regional Government" to monitor the gaps that may appear when I am implementation process. With assume Kurd, a Hoshyar Zebari, the Iraqi Ministry of Finance, and with monthly remittances that flow automatically once the approval of the budget, it may not be the deal complicated or too fragile. The payment of "peshmerga" adds an element of monthly salaries may be subject to delay due to Baghdad's policy as it must be to get the approval of the Secretary of Defense on each batch. Thus, the United States should use its influence senior partner in security cooperation to track these payments more closely in order to prevent any deterioration in the situation.

· Deal with the volatility of oil prices. If the average price of Iraqi oil is $ 70, the net return to Iraq is $ 60. In this case, the draft agreement recognizes obtaining "KRG" to slightly less than $ 690 million a month in Baghdad, a US $ 600 million in budget transfers in addition to the amount of $ 88.5 million in the troops, "peshmerga" salaries. The draft agreement also for "Kurdistan Regional Government" may allow to receive about $ 300 million of monthly independent oil exports by the middle of 2015. These amounts will be more than enough to cover the monthly salaries for "Kurdistan Regional Government", which, as we pointed out at about $ 670 million . In the context of a scenario in which oil prices fall to $ 40 (with a net value of Iraq about $ 30 a barrel), and Baghdad will suffer, "the Kurdistan Regional Government," both from a serious lack of funding. And, most importantly, that the situation may tempt the Kurds to withdraw from the deal in order to obtain additional revenues of about $ 170 million a month by selling all the oil "KRG" crude and Kirkuk independently, if we assume they will continue to enjoy access to it and with the consent of Turkey, that will get them through this process on the $ 685 million a month, compared with about $ 515 million a month they receive under the deal. So, the United States should pay great attention to the accounts of both sides, particularly when they are under severe financial hardship due to further declines in oil prices. In this context, Turkey is the best way to put pressure on the Kurds to give up any destabilizing movements of stability in the vicinity of Kirkuk.

· Export Kirkuk. Is an export company "Sumo" of crude oil from Kirkuk following an essential element to ensure the financial interests of the Baghdad through the deal, but the lifting of Kirkuk exports to up to 300 thousand barrels per day will not be easy. Since the month of July, extracted, "the Kurdistan Regional Government," more than 120 thousand barrels per day from the fields of "any good" and "Ivana", the two oil fields were historically subject to the management "of the federal government of the North Oil Company," and that most Iraqi officials regard them "fields of Kirkuk." There is no doubt that it will highlight the claims during 2015, giving the company "Sumo" of a new access to oil in these fields.Baghdad also will seek to get help from international oil companies to increase production in the remainder in "Baba Karkar" field which is run by "the North Oil Company," which is opposed by the Kurds in the past due to the intervention of the disputed status of Kirkuk. In contrast, the Kurds may seek to play a greater role in "North Oil Company." American mediation may prove to be very valuable in solving conflicts and find common ground in these sensitive sites.

The draft agreement, which was announced on 2 December / December courageous step by the Prime Ministers Abadi and Barzani, who Ihzia versed of the Ministers of Oil Abdul-Mahdi, with the support of the Federal Government of Iraq and drastically by the Kurds. Recall that it is possible that the parties used the agreement selfish way to ease the financial and political pressures in the short term, without any real commitment to implement the agreement through 2015. But in case it was agreed unpopular and has been applied, could see some very positive outcomes resulting from the signing of a deal process to increase revenues to the fullest extent and share in 2015. This will export 550 thousand barrels of oil a day to support the war in Iraq and the economy, which is heavily fatigued economy. It can strengthen cooperation in the fight against al «Islamic State of Iraq and the Levant» to the fullest extent, and to improve the restoration of federal and Kurdish connector governments in the first half of 2015. opportunities and thus, may lead not only to the survival of the fabric of the main Iraqi society together, but to strengthen it through a successful experiment in power-sharing between the spectra of society. As oil minister, Adel Abdul-Mahdi said in a "top of the Atlantic Council" in Istanbul on November 20: "Since the establishment of Iraq's oil and a cause of wars and conflicts, and now we want to be the cause of peace and cooperation."

 

[edithjimmy]

Well I hope they get the budget done.  So ready fot the RV, sounds good that they are  at least working together for a change.

Edited January 18, 2015 by edithjimmy