In response to U.S. pressures on Iraq to resume oil exports from the Kurdistan Region through the Turkish port of Jihan, a recent meeting in Baghdad involving the Federal Ministry of Oil, the Ministry of Natural Resources of the Kurdistan Region, and regional oil production companies concluded without a consensus regarding the resumption of these exports.
Insider sources reported that the Baghdad discussions, aimed at facilitating the return of exports, ended without achieving an agreement. Notably, a U.S. diplomat was present at the meeting, reflecting Washington’s ongoing efforts to support the resumption of these oil exports.
The Iraqi Ministry of Oil facilitated these talks, which took place on Thursday, amid ongoing disagreements between oil companies and the Ministry concerning export conditions.
Sources detailed that the U.S. diplomat’s presence was a direct result of requests from Washington aimed at influencing the negotiations.
Ali Shaddad, spokesman for the Parliamentary Oil and Gas Committee, indicated that a previous meeting held on March 2 had addressed the Kurdistan Region’s request to increase its allocation for local consumption from 46,000 to 110,000 barrels per day. This request is viewed as a clear violation of the budget approved by the House of Representatives and has hindered the resumption of crude oil exports through Jihan, as he noted, “Negotiating delegations have reached a standstill due to a legal stipulation that offers no room for negotiation or agreement.”
Shaddad further asserted that the Kurdistan Regional Government (KRG) is unable to export crude oil in the quantities specified in the agreement and contained in the budget law. He urged the federal government to apply the budget law consistently, including recent amendments.
He elaborated, “The KRG perceives these regulations as politically motivated, while we regard them as legal and technical. We hope for a return to specialized committees to formulate a new mechanism for implementing the latest budget amendments.” He emphasized Iraq’s obligation to comply with the OPEC agreement, which stipulates a production limit of 400,000 barrels per day from northern Iraq, while the region currently produces only 300,000 barrels, leading to a historical deficit of 100,000 barrels from its designated output.
A prior tripartite meeting held on March 2 in Baghdad had its outcomes submitted to Prime Minister Mohammed Shia Sudani, but no decisions were made regarding the resumption of oil exports from Kurdistan.
According to existing agreements, the Kurdistan Region is expected to produce 300,000 barrels of oil daily, with 185,000 barrels designated for export through Jihan and 115,000 barrels allocated for local consumption.
The federal government’s long-standing contention against production-sharing agreements with foreign companies in Iraqi Kurdistan has evolved following a lawsuit initiated in 2022. Recent negotiations have yielded some consensus between Baghdad and Erbil regarding contentious issues such as employee salary payments in the region and the resumption of oil exports through the Turkish port, signaling potential resolutions to a crisis that has negatively impacted both governments financially.
Contradictory to earlier statements by Prime Minister Sudani, who articulated that Baghdad was awaiting procedural completion to commence oil exports from Jihan, Iraq secured an arbitration ruling from the International Chamber of Commerce in Paris regarding Turkey’s unauthorized export of crude oil from the Kurdistan Region without involvement from the Iraqi Oil Marketing Company (SOMO). This ruling has led to a halt in Kurdistan oil exports amounting to 480,000 barrels per day since March 25, 2023.
On February 2, amendments to the public budget were approved, facilitating the resumption of oil exports from the Kurdistan Region to Jihan after a two-year suspension.
The amendments are designed to support the operational costs of international oil companies in the Kurdistan Region, with parliamentary approval regarded as a critical step toward reinstating oil exports to Turkey. In this context, the extraction and transportation costs per barrel of oil from the region are established at $16.
Recent discussions at the Munich Security Conference involving Foreign Minister Fouad Hussein reaffirmed that a legal framework had been agreed upon, focusing on the technical aspects necessary for oil exports between Iraqi federal entities and the Kurdistan Regional Government, particularly regarding local consumption versus export quantities.
Currently, Iraq produces between 400,000 and 500,000 barrels of oil per day from northern fields, including the Kurdish region, but faces operational challenges due to the pipeline disruptions impacting exports to Turkey.
Minister of Oil, Hayyan Abdul-Ghani, indicated plans for Iraq to resume transporting at least 300,000 barrels of oil per day once operations commence. Additionally, the Iraqi administration has initiated the official process for the Kurdistan Regional Government to facilitate oil shipments to SOMO, the body responsible for oil marketing.
Hussein noted that crude oil production in the Kurdish region is approximately 280,000 to 300,000 barrels per day, with the KRG estimating local energy needs at around 110,000 to 120,000 barrels daily. Baghdad maintains that a lower output may suffice for local needs.
The ongoing situation underscores the complexities faced by Iraq in balancing its commitment to reduce crude production under the OPEC Plus Agreement while striving to uphold its export obligations.
As scrutiny surrounding OPEC production and exports intensifies, regional dynamics remain pivotal, especially following calls for pricing adjustments from U.S. administration officials.
It is critical for Baghdad to navigate this landscape effectively to establish a revised federal budget that accommodates payments to international oil companies operating in Kurdistan, while simultaneously seeking resolutions with the Kurdistan Regional Government regarding the costs involved in oil production from the region.
In April 2023, an agreement between the Iraqi government and the Kurdistan Regional Government was formalized, mandating the export of 400,000 barrels of oil per day through SOMO, designating a KRG representative as assistant president of the company, and establishing a dedicated bank account for oil sales revenue subject to oversight by the Federal Financial Supervision Bureau.
