CNBC commentary on the Iraq/Kurd agreement.

Baghdad and the Kurdistan Regional Government (KRG) recently resolved their long-standing impasse over oil and revenue sharing. While the so-called Baghdad Agreement de-escalates tensions, future cooperation will depend on implementation. 


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The KRG developed its energy resources over Baghdad's objections. Though Baghdad is obligated to provide 17 percent of the federal budget to the KRG, it suspended payments in January 2014 to protest the KRG's energy policy. KRG President Masoud Barzani announced plans to conduct a referendum on independence, which further antagonized Baghdad.

The Baghdad Agreement pulls both sides from the brink. It is a win-win, generating revenue for both the KRG and Baghdad, while deferring difficult decisions over Kirkuk's status and Kurdistan's independence.

The KRG is required to deliver 250,000 barrels of oil per day from oilfields in the Kurdistan Region to Baghdad. It will also assist the export of 300,000 barrels per day from Kirkuk via its pipeline, which skirts territory controlled by the Islamic State. In turn, Baghdad will resume payments to the KRG. Baghdad will also give the peshmerga $1 billion to support the ongoing fight against ISIS.

Baghdad's direct support of the peshmerga also has symbolic value. After 11 years of talks, Baghdad is providing a portion of the national defense budget to the peshmerga. The agreement treats the peshmerga as part of the Iraqi defense system.

U.S. officials heralded the agreement as a victory for the unity of Iraq. It is a positive, but they should not rush to judgment. The agreement must be enshrined in Iraq's budget bill and passed by the Iraqi parliament. If the agreement is authorized, it must then be implemented—both sides must deliver.

The Baghdad Agreement defers decisions on important issues. It is silent on "disputed internal boundaries." The central government stills claims Kirkuk and Khanaqin, where Kurds predominate. Successive Iraqi governments ignored article 140 of the constitution, which requires a referendum on Kirkuk's status.

The agreement will be in force for just one year. Negotiations will resume before the ink is dry, pre-empting a period of confidence-building.

Iraq faces serious security and political challenges. The Islamic State, which occupies a third of Iraq's total territory, may have something to say about future negotiations. 
The landscape is uncertain. The two sides could be negotiating an extension of the revenue-generating agreement. Or, if Iraq fails and starts to fragment, they could be discussing the terms of Kurdistan's sovereignty and eventual independence.