Iraqi Oil Minister Hayan Abdul-Ghani and the Parliamentary Finance Committee recently discussed the potential resumption of oil exports from the Kurdistan region through the Iraq-Turkey Pipeline (ITP) to Turkey’s Ceyhan port. These exports have been halted since March 2023 after the International Chamber of Commerce (ICC) ruled that Turkey owed Iraq’s federal government $1.5 billion in damages for unauthorized oil exports facilitated by the Kurdistan Regional Government (KRG). The ICC found that Turkey had violated a 1973 agreement by allowing oil shipments from Iraqi Kurdistan without the federal government’s consent. However, discussions between the federal government (FGI) and KRG remain ongoing, with key issues still to be resolved before oil flows can resume.
A potential new agreement would likely follow the basic structure of a 2014 deal, where the KRG would transfer oil from its region to the Iraqi government’s State Oil Marketing Organization (SOMO) for export. In return, the federal government would allocate a portion of the national budget to the KRG. In 2014, this arrangement involved the KRG managing the export of up to 550,000 barrels per day in exchange for 17% of the federal budget after sovereign expenses. A similar deal appears to be in the works, with the FGI Cabinet ordering the KRG to transfer its oil to SOMO, and approving a payment plan to cover the KRG’s production and transport costs, set at $16 per barrel for international oil companies operating in Kurdistan.
However, past disputes between the FGI and KRG over budget payments and oil exports raise concerns about the viability of a new deal. After the 2017 Kurdish independence referendum, tensions escalated, especially following the Iraqi government’s recapture of key oilfields around Kirkuk, previously controlled by the KRG. Since then, the FGI has insisted that any negotiations be based on a share of the budget proportional to the Kurdistan region’s population, which is 12.67%, a far smaller percentage than the 17% previously agreed upon.
Russia’s involvement further complicates matters. In 2017, Russia stepped in as a key player in Kurdistan’s oil sector, providing $1.5 billion in financing and gaining control over major oil fields and infrastructure. Moscow has since used its influence to challenge the FGI’s decisions, including demanding pipeline transit fees from the KRG and questioning the Iraqi government’s stance on agreements with Russian oil giant Rosneft. Russia’s position further undermines the chances of a swift resolution to the longstanding dispute.
Despite these challenges, the FGI is likely to continue pushing for a unified Iraq, with the goal of diminishing the Kurdistan region’s autonomy. The FGI is particularly wary of any deal that would empower the KRG, as independent oil sales by the region complicate Baghdad’s ability to manage national oil exports. Additionally, the FGI is reluctant to send funds to the KRG, as this would delay the region’s full integration into a unified Iraq. This broader strategy was hinted at by Iraqi Prime Minister Mohammed Al-Sudani in August 2023, when he stated that a new unified oil law would govern oil production across both Iraq and Kurdistan, consolidating control in Baghdad.
The next steps are critical. A provision in the 2023 Budget Law requires the production and transportation costs for each oil field to be assessed by an international consultancy within 60 days of enactment. If no agreement is reached within that timeframe, the Iraqi Cabinet will select a consultancy without consulting the KRG. With these ongoing issues, it remains unclear when, or if, oil exports from Kurdistan will resume in full.
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