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Who Will Pay IOCs in Iraqi Kurdistan?

An Iraqi-Turkish oil pipeline for exports from the Kurdistan Region of Iraq might reduce tensions between Baghdad and Erbil, while improving Iraqi-Turkish ties, writes Denise Natali.
Tanker trucks wait to be loaded at Taq Taq oil field in Arbil at the semi-autonomous Kurdistan region of northern Iraq, about 350 km (220 miles) north of Baghdad, September, 5, 2012. To match Analysis IRAQ-OIL-KURDISTAN/ REUTERS/Azad Lashkari (IRAQ - Tags : - Tags: ENERGY BUSINESS POLITICS) - RTR37KB7

Once again Baghdad and Erbil are disputing Iraq’s annual budget, underlining the unresolved tensions over authority and rights in the state. The Kurdistan Regional Government (KRG) continues to request more revenues than its current 17 percent allocation, while Baghdad wants to reduce the KRG’s relative share.

The difference today is the context in which the budget dispute is unfolding, which is not in the KRG’s favor. It follows a period of worsening relations between Baghdad and Erbil, as well as the KRG’s expanding financial obligations — including honoring international oil company (IOC) contracts without any viable, alternative revenue source in sight. Even if both sides reach another temporary side deal, the budget imbroglio reveals the KRG’s financial vulnerability in the Iraqi state, its inability to fully pay IOCs, and the ultimate need for a grand compromise between Baghdad, Ankara and Erbil over hydrocarbons exports. 

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