Iraqi officials in Baghdad and their counterparts in the Kurdistan Regional Government have reached a preliminary agreement to resume oil exports from the country’s north with a final agreement expected “within days”.
The announcement by both governments on Sunday comes just over a week after Iraq said it had won a landmark arbitration case against Turkey over independent Kurdish oil exports, which the federal government in Baghdad has long considered illegal. The tribunal’s decision halted the flow of Iraqi crude to Turkey’s Ceyhan port.
The temporary stoppage accounted for about 0.5 per cent of global oil supply, according to data from Citigroup and the IEA. The supply cut helped spark a rally in oil prices last week, sending international benchmark Brent rising to almost $80 a barrel.
Several foreign oil companies said they had paused or slowed operations in Kurdistan in the wake of the tribunal decision.
“Following several meetings between the KRG and federal government, an initial agreement has been reached to resume oil exports through Ceyhan this week,” Lawk Ghafuri, head of foreign media affairs for the KRG tweeted.
Sources familiar with the discussions in Baghdad and the capital of the semi-autonomous Kurdistan region Erbil, said that while the principal points had been agreed, some of the finer details were still being negotiated.
Iraq is Opec’s second-largest producer, exporting about 3.3mn barrels of crude a day. Of those, Baghdad sends 75,000 b/d to Ceyhan from Kirkuk. The KRG does not publish its production figures but industry experts estimate it at about 440,000 b/d, most of which it exports.
Iraq as a whole accounted for 27 per cent of Turkey’s imports of oil and other petroleum products in December 2022, behind only Russia, according to the most recent data from the Turkish Energy Market Regulatory Authority.
Oil exports have been an economic lifeline for Iraq’s Kurdistan region. For years, the KRG exploited ambiguity in Iraq’s constitution to export crude and keep the revenues as a way of maintaining some financial independence from Baghdad.
The agreement will see northern exports jointly managed by the KRG’s natural resources ministry and Iraq’s State Organization for Marketing of Oil, people from both governments who were familiar with the negotiations said.
Bassem al-Awadi, spokesman for the federal government in Baghdad, said the KRG had agreed to form a committee to negotiate with SOMO over oil sales from the Kurdistan region, provided the oil was sold at a price set by SOMO. Industry experts say the KRG has historically sold its oil to traders at a significant discount.
Revenues from those exports will be “received by the KRG into an account that the federal government will observe”, a source in the KRG said. That account would sit in Iraq’s central bank or in a bank “accredited by” the federal monetary authority, Awadi said, adding that the KRG president would have the authority to access those funds.
The resumption of pipeline flows from the Kurdistan region and from Kirkuk’s oilfields, controlled by Baghdad, will still need approval from Turkey.
Turkey’s energy minister Fatih Dönmez this week disputed Iraq’s statement regarding the outcome of the tribunal, saying that his country had several of its claims against Iraq accepted in the arbitration. Dönmez said lawyers were still negotiating on the final settlement amount. The Turkish energy ministry did not immediately comment on Sunday.