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KRG Boosts Budget by $190 Million Amid Oil Handover Changes

Kurdistan Region Budget Amendment Enhances Oil Revenue Mechanism

The recent budget amendment is poised to significantly increase funding for the Kurdistan Region, generating an additional allocation exceeding $190 million contingent upon the delivery of 400,000 barrels of oil per day. This adjustment hinges on assessments to be provided by an international advisory firm.

The updated budget framework follows a revision of the budget law, which has surfaced potential disagreements between governmental entities in Erbil and Baghdad regarding the selection of the advisory party, with the Iraqi Council of Ministers tasked to make the final decision.

On February 2, 2025, the Iraqi Parliament unanimously approved the first amendment to the three-year budget law, which effectively revoked Article 12. The new draft law will govern the production, transportation, and delivery of oil from the Kurdistan Region, stipulating a provisional cost of $16 per barrel until a conclusive estimate is provided by the international advisory party.

Operational Timeline and Cost Assessment

Under the terms of the amendment, the stipulated cost of $16 per barrel will be applicable for the production and transportation of oil in the Kurdistan Region for a period of 60 days. During this timeframe, the Federal Ministry of Oil will collaborate with the Ministry of Natural Resources to reach an agreement.

The advisory party’s mandate includes evaluating the "fair" cost of oil production and transportation for each oil field within the Kurdistan Region.

Contingency for Disagreement

The budget amendment articulates a contingency plan should Erbil and Baghdad fail to reconcile their positions within the allotted 60 days. In such a scenario, the Iraqi Council of Ministers will appoint the advisory party to finalize the necessary assessments.

The responsibility for the transactions involving oil from the Kurdistan Region will lie with the Federal Ministry of Oil, particularly the oil marketing company, SOMO. Conversely, the Federal Ministry of Finance will oversee financial entitlements due to oil companies operating in the Kurdistan Region.

Pursuant to the amendment, financial obligations for oil companies in the Kurdistan Region will be sourced from sovereign expenditures, with the Federal Ministry of Finance processing these payments.

Addressing Historical Oil Debt

Until the advisory party establishes a definitive price for oil production, the Kurdish authorities can expect to receive $16 for each barrel of oil transferred to Baghdad, as mandated by the Iraqi Ministry of Finance. Therefore, the anticipated revenue for delivering 12 million barrels from the Kurdistan Region is projected at $192 million.

As articulated by Jamal Kochar, a member of the Iraqi Parliament’s finance committee, the Kurdistan Regional Government will not receive remuneration for oil production and transportation if it fails to comply with the stipulated deliveries.

Following the 60-day consultation period, the financial transactions previously conducted at the agreed rate of $16 per barrel will be reviewed. Should the financial entitlements exceed those previously allocated to the Kurdistan Region before the advisory price activation, Baghdad will be required to remit the excess to Erbil, whereas any overpayments will be deducted from the Kurdistan Region’s future allocations.

Implementation Timeline

The amendment’s implementation is underpinned by two key objectives: enhancing federal revenue generation and optimizing oil export channels while fostering diversification.

Kochar noted, "After the transfer of the oil, the Oil Ministry and SOMO will determine the export volumes." The legal framework for the amendment will be enacted upon its official publication.

Legal intricacies surrounding the implementation were emphasized by Dara Sekani, a member of the Iraqi Parliament’s Legal Committee, highlighting that "the amendment must be implemented after being published, but the question of execution may differ from legal stipulations."

Opposition and Legislative Dynamics

During the parliamentary vote on the amendment, a faction of lawmakers from central and southern Iraq expressed dissent. These MPs assembled as an opposition bloc, advocating for a collaborative approach to manage oil contracts.

Maliki, a spokesperson for the dissenting MPs, stated, "We have called for the Kurdistan Regional Government to engage in joint management concerning oil contracts." The opposition MPs boycotted the vote, and Hadi Salami, another member of the dissenting front, indicated intentions to challenge the amendment in the Federal Supreme Court.

This development underscores the ongoing tensions regarding oil management and distribution in the region, as multiple stakeholders seek clarity on the new legislative landscape.

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