Nearly two years have passed since the Federal Government of Iraq (FGI) halted oil exports from the Kurdistan Region of Iraq (KRI) via the Iraq-Turkey Pipeline (ITP). The March 25, 2023, decision led to a significant loss in revenue, with around 400,000 barrels per day (bpd) of Kurdish crude and 75,000 bpd of Kirkuk crude no longer flowing through the KRI to Turkey’s Ceyhan port.
However, a recent development in the Iraqi parliament has sparked renewed hopes for the resumption of oil exports. Last week, lawmakers approved a budget amendment, ensuring that the FGI’s Finance Ministry will pay the Kurdistan Regional Government (KRG) US$16 per barrel for oil produced in the northern region. This payment is seen as a subsidy for the international oil companies (IOCs) operating in the KRI, replacing an earlier offer of US$7.90 per barrel, which the KRG had rejected. While the amendment has raised optimism about the resumption of oil exports, history suggests that this hope may not be grounded in reality.
The Roots of the Dispute
The conflict over oil exports began on April 23, 2013, when the KRG passed a bill allowing it to independently export crude oil from fields in the semi-autonomous region if the FGI failed to provide the KRI its share of oil revenues. The KRG also set up plans for its own oil exploration and production company and a sovereign wealth fund to handle energy revenue. At the time, the KRI was producing around 350,000 bpd of oil and aimed to increase this to 1 million bpd by the end of 2015. The KRG’s goal was to achieve financial independence from Baghdad, eventually paving the way for political independence. This strategy set the stage for a planned referendum on Kurdish independence.
The FGI viewed this move as a direct threat to Iraq’s unity. In response, Baghdad sought to block independent oil sales by suing the KRG whenever it bypassed the central government. However, legal rulings on the issue were mixed, as the 2005 Iraqi Constitution does not clearly specify who controls oil exports. The KRG argued that it had the authority under Articles 112 and 115 of the Constitution to manage oil from fields that were not in production when the Constitution was adopted in 2005. It also claimed that, in the case of disputes, regional laws should take precedence.
Meanwhile, the FGI maintained that oil and gas belong to all Iraqis, according to Article 111 of the Constitution, and that any oil contracts not approved by Baghdad’s Oil Ministry should not be allowed to use Kurdish pipelines.
Attempts at a Resolution
In November 2014, Baghdad and the KRG reached a deal to settle the issue. Under the agreement, the FGI agreed to pay the KRG 17% of Iraq’s federal budget, after sovereign expenses, in exchange for the KRG’s commitment to exporting up to 550,000 bpd of oil through the FGI’s State Oil Marketing Organization (SOMO). However, this deal failed due to diverging goals. While the KRG wanted to use the funds to move toward financial independence and, ultimately, political independence, the FGI’s objective was to centralize control over oil exports and gradually reduce payments to the KRG, ultimately absorbing the Kurdish region into the broader country.
This ongoing tension between Baghdad’s desire for centralized control and the KRG’s push for autonomy was further emphasized by Iraqi Prime Minister Mohammed Al-Sudani’s August 2023 statement, where he confirmed plans for a unified oil law that would consolidate all oil and gas production under Baghdad’s authority. The law is intended to strengthen Iraq’s unity by overseeing oil production and investments throughout both the FGI and KRI areas.
Regional and Global Stakes
The dispute is not just an internal Iraqi issue. The KRI’s oil reserves and geographical position make it a key player in the Middle East, with global powers showing interest in the region’s energy resources. China and Russia, along with Iran, have long supported the FGI’s position, advocating for the integration of the KRI into Iraq. A senior Russian source stated that Iraq’s unity is essential for the region’s geopolitical balance, especially in limiting Western influence.
On the other hand, the KRG has worked to distance itself from Chinese, Russian, and Iranian influence, particularly those with ties to Iran’s Islamic Revolutionary Guard Corps. The U.S. and Israel also have strategic interests in the region, using the KRI as a base for monitoring operations against Iran.
This geopolitical competition is reflected in Iraq’s new oil deals. French oil giant TotalEnergies has secured a landmark US$27 billion deal in the FGI-controlled areas, while British Petroleum (BP) is working on developing the Kirkuk oil fields. Meanwhile, Chinese companies control more than a third of Iraq’s proven oil and gas reserves and are responsible for producing around 3 million bpd.
The Path Forward
The political and economic tug-of-war between Baghdad and the KRG continues to shape the future of Iraq’s oil exports. Iraqi Oil Minister Hayan Abdul Ghani recently stated that talks are underway with Turkey to resume operations through the Iraq-Turkey Pipeline. However, he also made it clear that for the KRG to benefit from the new budget disbursements, it must commit to transferring at least 300,000 bpd of oil to SOMO.
Despite these discussions, the complex, longstanding disagreements between the FGI and KRG make it unclear whether a lasting resolution will emerge. The global powers backing each side’s interests only add another layer of complexity to the situation.
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