On Saturday, Iraqi Foreign Minister Fouad Hussein announced that Baghdad is in the process of resolving technical challenges with the Kurdistan Regional Government (KRG) in order to recommence the crude oil export pipeline to Turkey. This initiative follows a nearly two-year closure, which has reportedly resulted in a loss of approximately $19 billion in revenue for Iraq.
Speaking on the sidelines of the Munich Security Conference, Hussein stated, “A legal framework has been established, and the focus now shifts to technical matters involving oil companies, the federal government, and the KRG to initiate exports.” He highlighted that current discussions are centered on the volume of barrels to be exported versus those allocated for domestic consumption.
He elaborated that “oil production in the Kurdish region hovers around 280,000 to 300,000 barrels per day, while the KRG estimates its internal consumption requires about 110,000 to 120,000 barrels per day.” Baghdad, however, contends that a lower volume might suffice.
When asked about local oil consumption needs, Hussein expressed hope that dialogue would commence next week, emphasizing, “Should an agreement be reached in the coming days, we could see resolution on this matter.”
The pipeline transporting oil from the Kurdistan Region to the Turkish port of Jihan was halted in March 2023 following a court order for Turkey to compensate Iraq with approximately $1.5 billion for transporting oil without Baghdad’s consent. At that time, Ankara declined to pay the fine, placing the onus on Erbil.
Regarding the ongoing crisis, the Iraqi Foreign Minister characterized the situation as a “minor conflict,” suggesting that it can be resolved during negotiations to renew the oil transport contract, which is set to expire next year. He noted that if oil exports recommence, the issues currently at hand would likely be addressed.
According to Hussein, the prospects for swiftly restarting the pipeline improved after the Iraqi parliament approved an amendment to the budget law, increasing compensation for production and transport from $6 to $16 per barrel. He indicated that oil companies have agreed to this temporary arrangement, pending a third-party investigation by foreign experts into the genuine costs of production and transportation.
He added, “Once the pipeline is operational and the oil companies are prepared, they can commence exports… The current rate of $16 per barrel is subject to change until we assess the real costs involved.”
Hussein concluded by stating that, “Iraq’s oil production will remain constrained due to our commitments to OPEC and OPEC agreements. However, it is essential for Iraq to resume oil exports via this pipeline, as it is our sole pipeline. Its functioning is crucial, providing a safeguard amid the current global and regional volatility.”
The closure of this pipeline has curtailed Iraqi oil exports by approximately 500,000 barrels per day. The reactivation of oil flows from Kurdistan may alleviate some pressure on global markets due to decreased shipments from Iraq, which is a primary source of crude oil.
Previously, Iraq exported an estimated 400,000 to 500,000 barrels daily from northern fields, including the Kurdistan Region, through the now-idled pipeline. Oil Minister Hayyan Abdul-Ghani has stated that Iraq plans to transport at least 300,000 barrels per day of crude oil as soon as operations are resumed. He also mentioned that the Iraqi government has initiated formal discussions with the KRG to transport oil to the Federal Oil Marketing Company (Sumo).
Turkey has reiterated that the pipeline is ready to resume operations and that it is now up to Iraq to proceed. Additionally, there is a strong indication from the United States supporting the resumption of oil flow through the Iraqi-Turkish pipeline.
The resumption of shipments via the pipeline presents a challenge for Baghdad, which is committed to reducing crude production as part of the OPEC+ agreement, while also striving to adhere to the promised discounts.
The production and export practices of OPEC are currently under heightened scrutiny following calls from former U.S. President Donald Trump last month to “reduce oil prices.”
