In a far-reaching deal that helps reunite Iraq in the face of a bitter war with Islamic extremists, the central government agreed on Tuesday to a long-term pact with the autonomous Kurdish region to share the country’s oil wealth and military resources.
The deal settles a long dispute between Baghdad and Erbil, the Kurdish capital in the north, over oil revenues and budget payments. It is also likely to halt a drive—at least in the short term—by the Kurds for an independent state, which appeared imminent this past summer after a violent territory grab by Islamic State, also known as ISIS or ISIL.
As the jihadists marched toward Baghdad in June, routing Iraqi Army forces, the Kurds took full control of Kirkuk and its rich oil fields. And they intensified efforts to market Kurdish oil independently, arguing that the government had withheld payments to Kurdistan that were badly needed to keep up the fight against Islamic State in the army’s absence.
Now, Prime Minister Haider al-Abadi’s government has agreed to pay the salaries of Kurdish security forces, known as the pesh merga, and also will allow the flow of weapons from the United States to the Kurds, with the government in Baghdad as intermediary.
“Now the priority really is to confront ISIS,” Hoshyar Zebari, Iraq’s finance minister, said in an interview Tuesday after emerging from the cabinet meeting to finalize the deal after several days of talks.
In reaching a deal, Mr. Abadi, who has been prime minister for less than three months, has further distanced his government from a legacy of bitter sectarian and ethnic division under his predecessor, Nuri Kamal al-Maliki. As prime minister, Mr. Maliki deeply alienated the Kurds and enraged Iraq’s Sunni Arab minority with his confrontational personality and policies that were seen as both exclusive and abusive.
“The new team, under Abadi, is a cooperative team, a positive team,” said Mr. Zebari, a Kurdish politician who was also Iraq’s foreign minister in the Maliki government.
With relations with Kurds now nominally mended, Mr. Abadi’s Shiite-led government faces a tougher task, but a critical one, in reaching an accommodation with the Sunni Arab minority. Relations had grown so hostile in recent years that many Iraqi Sunnis welcomed Islamic State jihadists as their defenders against the government and Iranian-backed Shiite militias allied with it.
Reconciling Sunnis with the central government is widely seen as an essential step to retaking land from Islamic State. Mr. Abadi has backed a plan—supported by the Americans—to set up local National Guard forces that would fight alongside the Iraqi Army. But that plan has stalled, as have intermediate steps to arm Sunni tribes, in the face of opposition by some Shiite factions, who worry that the government would be raising a Sunni army that could then turn on Iraq’s Shiites.
The oil deal, which put a final imprimatur on a temporary pact that was agreed to three weeks ago, also represented a significant victory for the United States, which has made a priority of pushing the Kurds and the central government to settle their political and economic differences.
American officials had expressed fear that if the two parties did not reach some sort of arrangement, the country would break up, with the Kurds pushing forward on longstanding ambitions for independence.
The deal also appeared to be a blow to the ambitions of Turkey, which had positioned itself as the savior of the Kurds by reaching deals—during the impasse of the Maliki years—in which the Kurds would export their oil and gas unilaterally through Turkey. Those pacts were considered illegal by Baghdad and the United States, and in recent months tankers filled with Kurdish oil loaded at a Turkish port were sailing the seas aimlessly, unable to dock anywhere because potential buyers worried about lawsuits.
The rapprochement between Baghdad and the autonomous Kurdish region also appeared to validate one element of President Obama’s strategy in confronting the Islamic State: the push for a more inclusive leader of Iraq. When the extremists swept into Mosul, Mr. Obama decided that Mr. Maliki had to go before the United States would ramp up its military efforts against the Islamic State.
After protracted negotiations and high political drama over the summer, with both the United States and Iran playing major roles, Mr. Maliki was replaced by Mr. Abadi.
So far, Mr. Abadi has proved to be a much more inclusive figure than Mr. Maliki, in both style and substance. He has removed corrupt officials and military officers who were seen as loyalists to Mr. Maliki, and has reached out to Sunni Arab countries such as Saudi Arabia that have historically been hostile to the Shiite-led government here. He has even reduced his own salary and those of his ministers, in a bow to public anger over the compensation for lawmakers.
But by far, his biggest victory to date is the deal with the Kurds, which establishes what Kurdish officials see as a more equitable split of oil revenue and officially brings Kurdish oil operations back under the auspices of the central government.
Mr. Abadi’s office released a statement on Tuesday underscoring a simple philosophy at the heart of the complicated negotiations: “that Iraqi oil belongs to all Iraqis.”
Under the deal, the Kurdistan region will provide 550,000 barrels of oil per day that will be sold through government channels, with the proceeds divided between Baghdad and Erbil. This includes 300,000 barrels per day from the disputed region of Kirkuk, which the Kurds took control over in June after the onslaught by the Islamic State forced the retreat of the Iraqi Army.
At a time when oil revenue is so critical to Iraq, the unlocking of those oil shipments may actually have a temporarily negative effect for the country: With prices recently hitting a five-year low, adding more Iraqi oil to a glutted market may drive them down even further, industry experts say.
The deal signed on Tuesday also stipulates that Baghdad will permanently resume payments to the region—which had been halted under Mr. Maliki amid the dispute—that amount to 17 percent of the national budget, plus another $1 billion to pay for salaries and weapons for the pesh merga, which are on the front lines fighting ISIS, sometimes with Iraqi security forces and Shiite militias.
In a news conference in Baghdad on Tuesday, Nechirvan Barzani, the Kurdish region’s prime minister, alluded to the tensions of the Maliki era and praised Mr. Abadi.
“Abadi’s desire to reach an agreement was motivational,” he said. “We hope to turn this in to a new chapter in the relations between Baghdad and Erbil, and we never accepted the threatening tone which was commonly used before.”