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Iraq's government has reached a temporary agreement with authorities in the Kurdish region to end a dispute over oil exports and budget payments to the semi-autonomous region.

Under the deal, the Kurdswill be allowed to sell 300,000 barrels per day (bpd) to Turkeyfrom Kirkuk via a pipeline running through their territory, in addition to 250,000 bpd from the region's own fields.

The crude will be sold by Iraq's state oil marketing organisation (SOMO), representing a compromise by the Kurds, who have long insisted the constitution entitles them to sell oil on their own terms.

In return, Baghdad will resume payments to the Kurds of 17 percent share of the national budget, and will disburse $1bn towards salaries and equipment of the Kurdish peshmerga forces, who are fighting the Islamic State in Iraq and the Levant (ISIL) in the north.

The Kurds have suffered a financial crisis since the federal government cut funding early this year as punishment for their move to export oil independently.

The agreement will help Iraq increase oil exports at a time when its budget is strained by low oil prices and the cost of financing the war against ISIL fighters who control much of the country. It will last at least for the budget year if neither side defaults.

Significant boost

"It needs some technical work which starts immediately by the KRG," Iraqi Finance Minister Hoshiyar Zebari told the Reuters news agency, describing the deal as a win-win for both sides.

A source in the Kurdistan Regional Government (KRG) said the region will sell 250,000 bpd of oil produced in areas under its control to SOMO at Ceyhan but would be free to sell anything produced over and above that amount.

That could mark a significant boost for the region, which has said it plans to export as much as 1 million bpd by the end of next year, but has faced long-running opposition from Baghdad to exporting its own crude.

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Iraq government reaches oil deal with Kurds - Middle East ...

Iraq's central government and leaders of the nation's semiautonomous Kurdish region unveiled an oil and budget deal Tuesday aimed at resolving a months-long dispute and presenting a united front against Islamic State militants.

The accord provides an interim resolution to a divisive issue at a time when the extremists threaten the central government in Baghdad and the Kurdish regional administration in the northern city of Irbil. The United States and other Iraqi allies have long pushed for an agreement to help improve often frosty relations between Baghdad and Irbil.

The deal calls for an Iraqi state entity to sell oil from Kurdish-controlled areas in the north while long-suspended federal revenues are restored to the Kurdish region. Both sides appeared to have compromised for now on the central issue: Who has the ultimate rights for the vast amounts of oil found beneath Kurdish lands?

Authorities said they hoped the accord would boost the nation's faltering economy.

"This deal is a win-win deal for both sides," Iraqi Finance Minister Hoshyar Zebari, a Kurd, told the Associated Press.

The disputed status of Iraq's oil revenues has stoked tension for more than a decade and recently threatened the government of Prime Minister Haider Abadi, a moderate backed by the United States and Iran, Iraq's major allies. Oil is Iraq's major source of revenue.

Abadi came to power in September, a few months after Islamic State insurgents swept through a large part of the country in June, chasing government forces and posing a grave security threat less than three years after U.S. troops left Iraq. The Pentagon has since launched airstrikes in Iraq and neighboring Syria against Islamic State, which President Obama has vowed to "degrade and ultimately destroy."

Though leading a Shiite-dominated government, Abadi has vowed to reach out to Iraq's disenchanted minorities, including Kurds and Sunni Muslims, as pro-government forces struggle to regain ground lost to the militants. Many experts saw Tuesday's agreement as a concrete marker of improved relations between Baghdad and the Kurdish region.

Brett McGurk, the U.S. deputy assistant secretary of State for Iraq, called the deal an "important breakthrough" in a Twitter post.

The United Nations envoy to Iraq, Nickolay Mladenov, hailed the two sides' "leadership and spirit of compromise in reaching this encouraging agreement."

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Iraq, Kurds agree on oil deal, uniting to fight Islamic State

Despite its war with ISIS, Iraq is pumping oil at a pace not seen in nearly 40 years, and the spigot will be opened still wider by a deal reached Tuesday between Baghdad and the Kurds, energy experts and U.S. officials say.

"They've been able to ramp it up quite impressively, despite ISIS," oil trader John Kilduff said of the Iraqis' oil production, which hit 3.4 million barrels a day in November. That level, which earned Baghdad $5.2 billion, was 100,000 barrels higher than the previous month and meant that Iraq is now pumping more oil than any OPEC member other than Saudi Arabia.

Tuesday's deal between the central government and the Kurdish regional government in Erbil will increase production, raising more money to fight ISIS and adding downward pressure on global oil prices, already are at their lowest levels in years, according to Kilduff and other experts.

Kilduff said Western investment and the ready availability of superior U.S. drilling equipment -- denied for decades because of sanctions against the government of Saddam Hussein - have helped Iraq increase its production in the midst of conflict.

But Iraqi geography and ethnic and sectarian divisions also have played a significant role in keeping the nation's rich oil fields out of harm's way.

The Sunni terrorists of ISIS control a 400-mile long swath of mostly Sunni Muslim territory in Iraq and Syria -- stretching from Mosul, a city of 700,000 in northern Iraq, to Reqqa in central Syria - but have not been able to extend its reach into oil-rich areas of Iraq in the far south, where Iraq's Shiite majority is dominant, or in the Kurdistan region, home of Iraq's Kurdish population.

Oil tankers dock at a floating platform on Sept. 21, offshore from the southern Iraqi port city of Al Faw, south of Basra.

It has gained control of small refineries, and for a time held the huge Baiji refinery north of Baghdad, but there are no significant oil reserves in the Iraqi portion of its self-declared caliphate.

"They control a lot of sand," said one U.S. official.

The oil that ISIS has been able to sell on the black market in Turkey -- estimated to be around 25,000 to 30,000 barrels a day, at prices as low as $25 a barrel -- comes not from Iraqi wells, but from declining wells in Syria, near the contested city of Aleppo, U.S. intelligence officials say. Tuesday's agreement between the Iraqi government and the Kurdistan Regional Government (KRG) is expected to further tilt that balance in favor of Iraq.

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Why Iraq Is Pumping Oil Like Crazy, Despite ISIS

Iraqi Finance Minister Hoshyar Zebari announced Tuesday that the Iraqi government and the Kurdistan region have started implementing a deal under which Baghdad resumes funding Kurdish civil servant salaries in return for a share of Kurdish oil exports. Ali Abbas/EPA /LANDOV hide caption

Iraqi Finance Minister Hoshyar Zebari announced Tuesday that the Iraqi government and the Kurdistan region have started implementing a deal under which Baghdad resumes funding Kurdish civil servant salaries in return for a share of Kurdish oil exports.

Iraq's government and Kurdish regional authorities have announced a deal that could end a dispute between them over oil exports and the budget.

Under the deal, announced by Iraqi Finance Minister Hoshyar Zebari, a Kurd, the Kurds will release 300,000 barrels per day of oil from Kirkuk. Another 250,000 barrels per day would be exported from the semiautonomous Kurdistan Region through Turkey.

In return, Baghdad said it would release 17 percent of the budget allocated to the Kurdish region, and would also give an extra $1 billion to Kurdish peshmerga who are fighting the Islamic State militant group.

The Associated Press reported that Iraq's Oil Minister Adel Abdul-Mahdi said joint committees will follow up on the implementation of the deal.

NPR's Leila Fadel, who reported on the deal for our Newscast unit, says, "The increased oil production could alleviate some pressure on the central government, which is facing an economic crisis, but also alleviate pressures in the Kurdish north where regional authorities have been having trouble paying government employees and the Kurdish security forces."

But there is skepticism about the agreement.

Ben Lando, editor in chief of the Iraq Oil Report, a trade publication that tracks oil deals in Iraq, told us in an email that though the agreement does give reason for optimism, "key areas of contention [between the two sides] have yet to be resolved."

Lando notes that issues such as Kurdistan's right to independently export and sell oil, Baghdad's claims that Kurdistan's contracts are illegal, and the control over fields that Kurdistan took from Baghdad in July have yet to be resolved.

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Iraq, Kurds Agree On Deal Over Oil Exports, Budget

Iraq's government and the autonomous Kurdish region say they've resolved their longstanding disputes over the budget and oil exports, boosting prospects of closer co-operation against jihadists.

Despite months of bad blood, the deal shows that the federal and Kurdish regional government still need each other.

Plummeting oil prices are financially squeezing the Baghdad government and Arbil is in desperate need of cash to pay its civil servants and shore up its security forces.

Iraqi Prime Minister Haider al-Abadi's office said the deal was approved during a cabinet meeting attended by Kurdish Prime Minister Nechirvan Barzani.

Under the deal, due to take effect at the start of 2015, 250,000 barrels per day of oil will be exported from the autonomous region and another 300,000 bpd from the disputed province of Kirkuk.

"We have reached an agreement with the Iraqi government which will benefit both parties and whereby we will export 250,000 bpd of regional oil and help the federal government export the Kirkuk oil," Barzani told reporters.

Oil from the Kurdish region or claimed by its leadership will be shipped out via Kurdish pipelines but through the federal oil company.

In return, Baghdad will release the regional government's share of national revenue, which had been frozen for more than a year in retaliation for Arbil's efforts to export oil unilaterally.

The federal government also will give a share of its military budget to the Kurdish peshmerga fighters.

"The federal prime minister has expressed his readiness to guarantee one billion dollars from the Iraqi budget for the peshmerga forces," Barzani said.

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Iraq govt, Kurds agree budget, oil deal