Sudani government proposes changes to oil deal with KRG

Parliament has conducted a first reading of proposed amendments to the federal budget. These amendments do not alter spending allocations but aim to revise the revenue-sharing agreement with the KRG.

The draft bill seeks changes to Article 12 (2J), which governs federal compensation to the KRG for its oil sales. Under the existing law, Baghdad commits to reimbursing the KRG for production and transportation costs of each barrel of oil handed over to the Ministry of Oil’s State Marketing Organization (SOMO). This compensation is currently based on the average cost of production and transportation for oil produced in federal Iraq. The current arrangement has been contentious, as the average cost per barrel in federal Iraq is approximately $8, while in the KRG, it is around $26 due to the nature of the contracts that were unilaterally signed by the KRG with oil companies.

PM Sudani, who was in Erbil two weeks ago, has proposed a compromise more favorable to the KRG. The revised amendment to Article 12 (2J) states, somewhat vaguely, that compensation will be based on "fair estimated costs," as determined by a specialized consulting company chosen through mutual agreement between Baghdad and Erbil. Additionally, the costs will be calculated individually for each oilfield in the Kurdistan Region rather than relying on a single average cost. This change could significantly increase the KRG’s compensation compared to the current $8 per barrel.