Iraqi Parliament Approves Budget Amendment to Resolve Oil Export Dispute
On February 2, 2025, the Iraqi Parliament sanctioned an amendment to the general budget aimed at addressing a longstanding dispute between the Kurdistan Region and the federal government in Baghdad regarding the region’s oil revenues. This legislative move has the potential to facilitate the resumption of oil exports, which have been halted for nearly two years.
The approved amendment stipulates that the Kurdistan Region will restart its oil exports through the Federal Government Oil Marketing Company (SOMO). It also establishes a cost framework for the extraction and transportation of oil, set at $16 per barrel for a duration of 60 days. During this period, an international advisor will assess the costs from each oil field separately, and if this evaluation is not completed, the cabinet will determine the costs.
In September 2024, Prime Minister Mohammed Shia Al-Sudani indicated that Iraq had two potential pathways to resolve the Kurdistan oil crisis: amending existing contracts with oil companies in the region or modifying the budget law. He further noted that oil companies operating in the region were resistant to contract amendments but assured that discussions with both the region and the oil companies would continue to explore legally viable solutions.
Bishua Huramani, spokesman for the Kurdistan Regional Government (KRG), described the budget law amendment as a “positive step” and expressed gratitude to the Kurdish blocs in the House of Representatives and other stakeholders for their role in passing the amendment. He mentioned that a cooperative understanding had been reached between technical delegations from both the KRG and the federal government, affirming a “real intention” to address and resolve all issues between Erbil and Baghdad.
Huramani also announced that salaries for employees in the Kurdistan Region would be processed in the coming days, indicating a commitment to addressing administrative concerns alongside the oil dispute.
The KRG’s ambition is to establish a comprehensive agreement that satisfactorily resolves all outstanding matters between Erbil and Baghdad.
The Kurdish parliamentary blocs have welcomed the passage of the amendment to the Federal Public Budget Law, interpreting it as a pivotal step toward reinstating oil exports from the region via SOMO. Official estimates suggest that the suspension of Kurdistan’s oil exports, effective for approximately 20 months, has caused economic losses exceeding $15 billion for Iraq, with no timeline currently established for the resumption of these exports.
The Kurdistan Democratic Party bloc characterized the law’s approval as a “great achievement,” with expectations that it will enhance financial revenues for Iraq’s public budget and foster improved relations and understanding between Erbil and Baghdad.
In October 2024, the President of the Kurdistan Region, Negran Barzani, emphasized that the suspension of oil exports had resulted in $15 billion in losses for Iraq, advocating for a focus on the oil sector from an economic rather than a political standpoint. He reiterated the need to resume oil exports from the Kurdistan Region through established channels akin to those for Iraqi oil.
Background of the Crisis
The Kurdistan Region previously exported oil through Turkey, with production figures reaching 450,000 barrels per day, a move deemed illegal by the Baghdad government. This disagreement led to a lawsuit presented to the International Chamber of Commerce’s Arbitration Authority in Paris, where Baghdad won a decision in March 2024 prohibiting Kurdistan from exporting oil independently via Turkey.
Following this ruling, an agreement was struck in April 2024 that allowed for the export of 400,000 barrels of oil daily through SOMO, with the inclusion of a KRG representative in a managerial role at SOMO and the establishment of a specific bank account for transferring oil revenues. Despite the hopeful prospects of this agreement, oil exports from the Kurdistan Region did not resume.
Kurdistan’s oil exports remained suspended after Turkey closed the pipeline in 2023 due to a ruling requiring compensation of approximately $1.5 billion to Baghdad for unauthorized oil transport. Prior to this closure, the majority of Kurdistan’s crude oil had been channeled via the official pipeline leading to the Turkish port of Ceyhan, which originated in Kirkuk, Iraq. Concerns have arisen regarding how agreements between the Turkish government and the KRG may negatively impact the relationship between Ankara and Baghdad.
With the recent parliamentary amendment, the production cost for oil delivery to SOMO has been assessed at $16 per barrel, a substantial increase from the previous estimate of about $7 per barrel. These new cost estimates are crucial for compensation arrangements, with federal finance to pay amounts based on actual barrels delivered. The amendment mandates immediate oil delivery and requires the Federal Ministry of Finance to compensate at the established rate, which will later be adjusted following the advisory authority’s review.
This legislative change is seen as vital for compensating international oil companies operating in the Kurdistan Region, aiming to resolve existing disputes and expedite oil export resumption. The 2023 budget had set compensation at $6 per barrel, a figure rejected by foreign firms citing higher operational costs in the Kurdistan Region.
While the new legal amendment does not invalidate the March 2023 ruling from the International Committee, it is designed to streamline the logistical operations of oil transportation between the regional and federal jurisdictions ahead of export via Turkey.
Implementation of these new provisions depends on continued negotiations between Baghdad and Erbil, as well as with oil companies, and requires approval from Turkey, which has signaled a willingness to collaborate.