Despite the condemnatory rhetoric that continues to ring out from Baghdad, the Kurdistan Regional Government (KRG) can take satisfaction from the increasingly rude health of its oil sector. To a list of upstream participants that already includes Exxon Mobil, Marathon, Hess, Repsol and OMV it can now add Chevron, which has acquired an 80% interest in the Rovi and Sarta blocks from India's Reliance. The federal government last week warned that Chevron would be barred from oil contracts in the rest of Iraq unless it canceled this "illegal" deal. The danger for Erbil is that this time Baghdad may go beyond mere words and try to exploit the biggest chink in the KRG's armor - its dependence on a share of Iraq's federal budget (PIW Jul.23' 12). Only last month, Iraqi government spokesman Ali Aldabbagh told PIW that there were no plans to cut the KRG's 17% share of the budget, and that matters would be resolved in a friendly way, "through dialogue." But the two sides are not talking, and a new committee has been authorized by Iraq's cabinet, without Kurdish support, to "settle the accounts" of the KRG's oil supply and revenue with reference to the 2012 budget. This suggests Baghdad is finally considering a cut to KRG funds - under the budget, Erbil was to provide 175,000 barrels per day of oil for export, but these volumes were halted in April (PIW Apr.9' 12). Baghdad claims that the KRG's actions, including oil smuggling, have cost it $8.5 billion - a potentially crippling fine for Erbil to pay.
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