Iraq’s Efforts to Resume Oil Exports through the Kurdistan Region
Iraqi Foreign Minister Fouad Hussein has announced advancements in negotiations to resolve technical issues hindering the resumption of crude oil exports from the Kurdistan Region to Turkey. This follows a significant closure of the pipeline that lasted nearly two years, which has resulted in an estimated loss of $19 billion in revenue for Iraq.
Legal Framework and Technical Discussions
Speaking on the sidelines of the Munich Security Conference, Hussein stated that a legal framework has been established. Current discussions focus on technical questions involving oil companies, the federal government, and the Kurdistan Regional Government regarding export specifics. Key topics include the volume of barrels that can be exported versus those required for domestic consumption.
Hussein noted that the Kurdistan Region’s oil production ranges between 280,000 and 300,000 barrels per day, with local consumption needs estimated at approximately 110,000 to 120,000 barrels per day. He emphasized that Baghdad believes a lower figure may suffice for local requirements.
Anticipation of Agreement
Regarding future talks about oil allocation for local use, Hussein expressed optimism that discussions would commence soon. He anticipates that, if an agreement can be reached within the next few days, it would pave the way for the resumption of exports.
Background on Pipeline Suspension
The pipeline, which transports oil from the Kurdistan Region to Turkey’s port of Ceyhan, was suspended in March 2023. This action followed a ruling mandating Turkey to pay approximately $1.5 billion in compensation to Iraq for transporting oil without Baghdad’s consent. At that time, Turkey rejected the ruling and directed the responsibility of the fine towards Erbil.
Describing the situation, the Foreign Minister characterized it as a "small conflict" and expressed confidence that negotiations related to the expiring oil transport contract could address such issues if exports were to resume.
Legislative Changes and Economic Implications
Recent developments have increased the likelihood of restarting operations, particularly after the Iraqi parliament approved an amendment to the budget law, raising payment for oil production and transport from $6 to $16 per barrel. This adjustment is seen as a temporary measure until an investigation is conducted by third-party international experts regarding the actual costs associated with production and transportation.
Hussein clarified that once the pipeline is operational and oil companies are ready, exports can proceed at the revised rate, with potential adjustments as more information becomes available.
Constraints Related to OPEC Commitments
Hussein reiterated that Iraq’s oil production levels would remain moderated to comply with OPEC agreements, noting the critical need for the pipeline’s operational status. The ability to export through this pipeline is essential, particularly in a challenging geopolitical landscape where stable oil exports are crucial.
The suspension of the pipeline has seen a decline of approximately 500,000 barrels per day in Iraqi oil exports. The anticipated resumption of flows from the Kurdistan Region is expected to alleviate some supply impacts on global markets, where Iraq has been a key crude supplier.
Iraq had been exporting between 400,000 and 500,000 barrels per day from its northern fields, including the Kurdistan Region, before the pipeline’s closure. The Iraqi Oil Minister, Hayyan Abdul-Ghani, indicated earlier this month that Iraq aims to restart moving at least 300,000 barrels per day upon resuming operations. The Iraqi administration has also initiated discussions to encourage the Kurdistan government’s collaboration in transporting oil through the Federal Oil Marketing Company.
Turkey’s Position and Future Outlook
Turkey has consistently maintained that the pipeline is primed for use and that the decision to resume operations lies with Iraq. Additionally, the United States has shown strong interest in seeing oil flow through the Turkish-Iraqi pipeline once again.
However, the potential renewal of exports raises compliance challenges for Baghdad, which is committed to reducing crude production under OPEC+ agreements while navigating the complexities of adhering to these commitments amidst fluctuating market demands.
Global scrutiny of oil production and prices continues, especially following recent calls from prominent leaders to stabilize oil costs, influencing the strategic decisions made by oil-exporting countries.
In conclusion, as Iraq navigates these intricate negotiations and adjustments, the prospects for resuming oil exports through the Kurdistan Region remain a central focus and are poised to impact both national and international markets significantly.
