Since March 25, 2023, the Federal Government of Iraq (FGI) has imposed an embargo on oil exports from the semi-autonomous Kurdish Region of Iraq (KRI) in the north. Officially, this embargo remains in effect. However, in reality, the Kurdish region has significantly increased its oil production to approximately 250,000 barrels per day (bpd), up from around 2,000 bpd in the immediate aftermath of the ban.
A source close to the Oil Ministry told OilPrice.com last week, “The KRI’s actions directly challenge the authority of the Iraqi government. The government has made it clear that all major oil exports from the Kurdish region must go through the State Oil Marketing Organization (SOMO), which is controlled by the Oil Ministry.” The source added that these unauthorized sales are subject to ongoing legal actions and disrupt Iraq’s compliance with OPEC+ production cuts, affecting Iraq’s overall quota.
Despite these issues, a senior EU energy security official suggested that the Kurdish region’s actions might be its only viable option for maintaining its autonomy. He noted that since the embargo was imposed, there have been numerous calls for dialogue from companies, business groups, and politicians to resolve the deadlock. However, these appeals have not led to any tangible progress, and the situation has persisted without resolution. The Kurdish region, losing a crucial source of funding, faces threats to its economic stability and aspirations for independence.
In January, the Association of the Petroleum Industry of Kurdistan (APIKUR), representing several foreign oil interests, sent a letter to the U.S. Congress seeking intervention to lift the export ban. The letter highlighted that the embargo, which impacts 400,000-500,000 bpd of oil, jeopardizes over $10 billion in investments and severely affects the region’s economy and stability, especially amid heightened regional tensions.
Interestingly, while the KRI’s oil production surge contradicts the embargo’s intent, it may not violate the embargo’s legal terms. Much of this increased output is being sold through alternative methods rather than the main Iraq-Turkey Pipeline, which is the focus of the ban. Industry sources indicate that the oil is often sold to local traders at a discount and then refined into diesel and gasoil. Some of it is trucked to other destinations, including Syria, with reports suggesting Iran may also be purchasing some of this oil. However, given the complex relationship between Tehran and Baghdad, any oil sold to Iran is likely to be small-scale and unofficial.
The legal status of both the embargo and the Kurdish oil exports remains ambiguous, as the 2005 Iraqi Constitution does not provide clear guidance. The Kurdistan Regional Government (KRG) cites Articles 112 and 115, which it argues give it authority over oil and gas from fields not in production in 2005. The KRG interprets Article 115 as granting it the right to manage and profit from its oil and gas exports. In contrast, the FGI and SOMO argue that Article 111 designates oil and gas as belonging to all Iraqi people, meaning that all oil should be sold through the central government.
Previous attempts to resolve this constitutional issue have been unsuccessful. A 2014 agreement between the FGI and KRI to share oil revenues and export up to 550,000 bpd through SOMO fell apart, with both sides accusing each other of failing to meet their obligations. Russia’s involvement as a mediator from late 2017 did not resolve the issues and instead appeared to serve Moscow’s interests in the region.
Currently, the FGI has demanded that the KRI reduce its oil output to 46,000 bpd, with any excess production requiring compensation payments. The FGI has withheld approximately $7 billion in funds due to the KRI since the embargo began. This aligns with the FGI’s broader goal of integrating the KRI into a fully unified Iraq. Iraqi Prime Minister Mohammed Al-Sudani has emphasized that a new unified oil law, controlled by Baghdad, will govern all oil and gas production in both Iraq and the Kurdistan region, reinforcing the country’s unity.