Iraq's Prime Minister Al-Sudani says no progress on Kurdistan oil exports talks

Iraq's Prime Minister Al-Sudani says no progress on Kurdistan oil exports talks
Negotiations have stalled due to conflicting demands between Turkey, the Kurdistan Regional Government (KRG) and the Iraqi federal government.
4 min read
21 May, 2024
Oil exports from the Kurdistan region via the Iraq-Turkey pipeline have been halted since March 23, 2023. [ Getty]

Iraq's Prime Minister Mohammed Shia' Al-Sudani announced on Sunday that negotiations with oil companies regarding the resumption of oil exports from the Kurdistan region to Turkey have made no progress.

At a press conference in Baghdad, Al-Sudani also announced that his cabinet had sent the 2024 annual budget bill to parliament for adoption. 

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Oil exports from the Kurdistan region via the Iraq-Turkey pipeline were halted on 23 March 2023 following a ruling by a Paris-based arbitration court in favour of Baghdad against Ankara. The court determined that Ankara breached a 1973 agreement by allowing Erbil to begin independent oil exports in 2014.

The prolonged closure of the pipeline has resulted in significant losses for both Baghdad and Erbil. It has stopped the daily export of 450,000 barrels of crude oil, which constitutes about 0.5% of the global oil supply. The New Arab witnessed crude oil from the Kurdistan region being smuggled into Iran via trucks.

Negotiations have stalled due to conflicting demands among Turkey, the Kurdistan Regional Government (KRG), and the federal government. Baghdad considers the production-sharing agreements between the Kurds and foreign companies illegal, as per a ruling by Iraq's Supreme Federal Court. The Iraqi federal government insists that foreign oil companies negotiate new contracts with the Iraqi oil ministry.

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Baghdad also insists that the companies sell their oil through the revived Kirkuk-Ceyhan pipeline, which has been shut for a decade, would provide a rival route to a pipeline from Iraq's Kurdistan region 23 February, Iraq's Supreme Federal Court ruled that the Kurdistan Regional Government (KRG) must hand over all oil and non-oil revenues to Baghdad. The court also mandated that the Iraqi federal government pay the salaries of KRG civil servants, requiring cooperation from the KRG.

This decision followed the KRG's failure to promptly and thoroughly distribute wages, relying instead on multiple loans from the Iraqi federal government. In June 2023, Iraq's parliament approved a three-year budget bill totalling nearly 198.9 trillion dinars (US$153 billion), the largest in the country's history.

Under this law, the semi-autonomous Kurdish region must deliver 400,000 barrels per day (bpd) to the federal authorities and half of its non-oil revenues before receiving its 12.6 per cent share of the federal budget.

The United States has called on the Iraqi government and KRG to resolve their differences and resume oil exports through Turkey. This month, U.S. Assistant Secretary of State Geoffrey R. Pyatt visited Iraq and discussed energy issues with PM Sudani and KRG Prime Minister Masrour Barzani.

The Association of the Petroleum Industry of Kurdistan (APIKUR), representing foreign oil companies in the region, alleged in March that the Iraqi government had not taken the necessary steps to reopen the pipeline. They claimed that despite the year-long hiatus, there has been little progress in resuming exports. Conversely, the Iraqi oil ministry blamed the companies for the continued closure.

The New Arab has contacted Asim Jihad, the spokesperson of Iraq's oil ministry, and a spokesperson for APIKUR, but they were not immediately available to comment.

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Bahrooz Jaafar, founder and head of the Mediterranean Institute for Regional Studies (MIRS), commented on the situation to TNA, explaining that every business endeavour requires a contractual agreement. He highlighted that oil contracts dictate financial distributions and cover environmental concerns and Corporate Social Responsibility (CSR) initiatives.

Jaafar noted that the KRG's oil contracts typically follow a Production Sharing Contract (PSC) model, where the contracted company assumes the exploration risk. He emphasized the need for the KRG Ministry of Natural Resources to establish a monitoring team to oversee foreign companies' extraction methods and prevent excessive pressure on oil wells.

He also mentioned that recent payment delays from the KRG to international oil companies have led to unmet expectations and a decline in production, reducing investment from petroleum multinationals. 

The ongoing impasse continues to impact the region's economy and the global oil market, with no clear resolution in sight.

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Oil production in Kurdistan could nearly halve by 2027 without new exploration or major investment, according to government Reuters, which reported in 2022, citing government documents. A significant drop in oil revenue, which is crucial for the KRG, would exacerbate the economic challenges of a region already facing financial difficulties within an unstable Iraq, diplomats, officials, and energy experts noted.

The documents indicate that the KRG could increase its oil output to 580,000 barrels per day (bpd) in five years if investment is fully optimised, with 530,000 bpd available for export. However, the previously unreported documents show that without new investment, the semi-autonomous region may only have 240,000 bpd available for export as older wells become depleted.