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Iraqi oil dispute reveals KRG vulnerability

There might be a short-term fix before the Iraqi elections in April, but a lasting solution on the Baghdad-Erbil hydrocarbon question is not imminent.
Iraqi Prime Minister Nuri al-Maliki (R) speaks next to his Iraqi Kurdish counterpart Nechirvan Barzani during a meeting of the Council of Ministers in Arbil, about 350 km (220 miles) north of Baghdad June 9, 2013. Maliki visited the Kurdistan region on Sunday for the first time in more than two years, in an attempt to resolve a long-running dispute over oil and land that has strained Iraq's unity to the limit. REUTERS/Azad Lashkari (IRAQ - Tags: POLITICS) - RTX10H5T

The ongoing tit for tat between Baghdad and Erbil over oil-export rights and revenues has escalated over the past two weeks, leading to the Kurdistan Regional Government's (KRG) most serious banking crisis since 1991. In the absence of an agreement, Baghdad has withheld part of the KRG’s revenues, resulting in non-payment of some civil servant salaries for two to three months, including the Peshmerga forces and the Oil Protection Force that guards international oil company (IOC) installations. KRG President Massoud Barzani has responded harshly by equating Baghdad’s actions to a “declaration of war on the people of Kurdistan” while claiming the ability to pay salaries from KRG funds.

Despite employing nationalist rhetoric, staging anti-Maliki protests, blaming the United States for a lack of support and pressing IOCs for payments, the KRG’s efforts to leverage Baghdad and independently export oil remain ineffective. Alongside ongoing legal, political and technical obstacles, the KRG’s key ally and energy partner, Turkish Prime Minister Recep Tayyip Erdogan, is facing his own domestic crisis and an uncertain political future. In the absence of a legal transit route or viable alternative revenue source, and with mounting criticism by local populations and investor confidence to sustain, Erbil will be hard-pressed to compromise with Baghdad. If not, the landlocked region risks undermining the economic and political gains it has made thus far while leaving its population and key institutions vulnerable to social, political and financial instability.

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