Kurdistan Oil Company: A path to resolving oil disputes
Shafaq News/ The ongoing disputes over oil resources andrevenue sharing between the Iraqi federal government and the Kurdistan RegionalGovernment (KRG) have long been a source of tension, hindering the Iraqinational unity and its economic stability.
Historical Background
Oil has been a cornerstone of Iraq’s economy since itsdiscovery in the early 20th century. The development of the oil sector has beenclosely tied to Iraq’s political trajectory, with periods of nationalization,international partnerships, and conflicts over resource control. Following the2003 US-led invasion of Iraq, the country adopted a federal system that grantedregions, including Kurdistan, significant autonomy.
Under the 2005 Iraqi Constitution, the Kurdistan Region gainedconsiderable authority over its natural resources. Article 112 and Article 115of the constitution allow the KRG to manage all the oil fields discovered afterthe constitution’s ratification. However, disputes arose over theinterpretation of these provisions, particularly regarding revenue-sharingmechanisms and the rights to sign contracts with international oil companies(IOCs).
Ongoing Strains And Conflicts
Baghdad insists on central oversight of all oil exports andrevenues, arguing that oil is a national resource that should benefit allIraqis. In contrast, the KRG maintains that its constitutional rights grant itautonomy over the extraction and export of oil within its territory.
These disagreements have often led to budgetary disputes.For years, Baghdad has withheld budget allocations to the KRG, accusing it offailing to meet production-sharing commitments. Meanwhile, Erbil has accusedBaghdad of undermining its economic stability by using budget allocations as apolitical tool.
The situation reached a breaking point in 2022 when a rulingby Iraq’s Federal Supreme Court deemed the KRG’s oil and gas lawunconstitutional. While the Iraqi federal government claims sovereign authorityover all oil production and exports, the KRG has independently managed its oilsector, exporting crude via Turkiye’s Ceyhan port and bypassing Baghdad. The2023 arbitration ruling by the International Chamber of Commerce (ICC) in favorof Iraq, which temporarily halted oil exports through Ceyhan, underscored theurgency of finding a sustainable resolution.
These continuous tensions were addressed by Kurdistan RegionPresident Nechirvan Barzani during his meetings with Iraqi officials in Baghdadthis month.
Barzani's visit to Baghdad aimed to resolve ongoing disputesover salaries, entitlements, and oil exportation—a process currently stalleddue to high extraction costs for companies operating in Kurdistan.
Speaking to Shafaq News Agency, parliamentary financecommittee member Moeen Al-Kadhimi confirmed that the committee met withrepresentatives from Iraq’s Ministry of Finance to discuss budgetimplementation for 2024. “The approved budget for 2024 is 211 trillion Iraqidinars, but actual spending has been 156 trillion dinars so far, with revenuestotaling only 137 trillion dinars. The deficit has been covered through loans,”Al-Kadhimi explained.
He stressed the importance of a realistic 2025 budget,suggesting it should not exceed 150 trillion dinars. Once the revised budgetlaw is approved by parliament, adjustments will account for Kurdistan's oilextraction and transportation costs, which range from $6 to $16 per barrel.
In parallel, the parliamentary oil and gas committee hasbeen working on amendments to the budget law that pertain to Kurdistan's oilsector. Committee member Basem Al-Gharibawi emphasized that any changes mustcomply with Iraqi law and the constitution.
Proposals under discussion include amendments to Article 12of the budget law, which would facilitate the formation of a "GeneralCompany for Kurdistan Region Oil." This entity, modeled after existingstate oil companies, would operate under Iraq’s Ministry of Oil and oversee theextraction and exportation of oil in Kurdistan. “This proposal aims to resolvelongstanding tensions between Baghdad and Erbil,” Al-Gharibawi said.
What Could Be Done Next?
In light of these challenges, the idea of establishing theKurdistan Regional Oil Company (KROC) has gained traction as a potentialsolution. Modeled after Iraq’s state-owned oil companies, such as the North OilCompany and South Oil Company, KROC would operate under the supervision of thefederal Ministry of Oil. This structure aims to reconcile the constitutionalautonomy of the KRG with Baghdad’s demand for central oversight.
The proposed company would handle the extraction,transportation, and exportation of oil from the Kurdistan Region, ensuringtransparency and compliance with federal regulations. By creating a direct linkbetween the KRG and the federal government, the KROC could help rebuild trustand establish a framework for equitable revenue sharing. Additionally, it couldaddress concerns from IOCs about legal and financial stability, encouragingrenewed investment in Kurdistan’s oil sector.
Potential Challenges And Implications
While the establishment of KROC presents a pathway toresolving disputes, significant challenges remain.
Politically, it requires consensus between the KRG andBaghdad, as well as legislative amendments to Iraq’s budget and oil laws. Thesenegotiations are likely to be contentious, given the deep-seated mistrustbetween the two sides.
Economically, the success of KROC hinges on its ability tobalance the interests of multiple stakeholders, including the federalgovernment, the KRG, and IOCs. Ensuring transparency in revenue distributionand operational efficiency will be critical to its credibility. Additionally,KROC must address technical challenges, such as the cost of oil extraction inKurdistan, which is higher than in other parts of Iraq due to the region’sgeology.
