Kurdish Regional Government pledges to respond to Iraq’s bid to control oil sector

A court decision in February ruled that the region had no right to independently export oil

A Dana Gas operation in the Kurdish region of Iraq. Reuters

The Kurdish Regional Government will respond to Iraq’s move to control the semi-autonomous state’s oil and gas sector by Friday.

“After a KRG delegation visited Baghdad and met with the Iraqi Oil Ministry, the Ministry put forward a proposal which the KRG is currently studying,” KRG spokesman Lawk Ghafuri tweeted on Monday.

“The KRG will officially respond to Baghdad’s proposal by Friday and co-operation will continue in accordance with the Iraqi Constitution.”

In February, Iraq’s Federal Supreme Court ruled that the KRG must hand its crude oil supplies to Baghdad after deciding that a 2007 Kurdish law on oil production, revenue and exports was unconstitutional.

The court ruling was one of the most dramatic developments in a nearly two-decade long dispute over the extent to which the Kurdish region can enter into oil contracts with foreign oil and gas companies, make its own energy regulations and independently export and market oil.

On Saturday, Haitham Al Jubbouri, technical adviser to Iraq’s Prime Minister Mustafa Al Kadhimi, said it was important to implement the court’s ruling.

“There is no option but for the Federal Government and the Kurdistan Regional Government to implement the [court] decision,” Iraq’s state news agency quoted him as saying.

Currently, crude oil from the KRG is exported from the region through a pipeline running from Kirkuk to Ceyhan in Turkey.

Implementing the Iraqi court decision would mean that Baghdad’s Ministry of Oil would have control over Erbil’s crude, although questions remain as to how complex such an undertaking might be, especially given that one section of the export pipeline originates in Kurdish territory.

Part of Iraq’s plan, revealed by the Ministry of Oil in April, includes setting up an oil company in Erbil to manage the KRG’s oil and gas.

In recent months, international oil companies have been cutting back operations in the Kurdish region after significant financial losses during the Covid-19 pandemic, which caused an oil price crash, and disputes with the Kurdish Regional Government. US international oil company Exxon stopped its oil operations there last month.

Iraq's Minister of Oil Ihsan Ismail said Kurdish oil was being sold at an unacceptable discount compared to oil marketed by Iraq's federal State Organisation for Marketing Oil. Kurdish oil exporters have in the past sold the oil cheaply to encourage buyers after Baghdad threatened legal action against anyone purchasing shipments.

But Mr Ismail has said there is “no desire for Baghdad to control the oil activity in the Kurdistan region, but to organise that activity and turn it into a real, clear, and transparent business activity”.

Iraq's 2021 budget — the 2022 budget cannot be passed before the new government is formed — says the Kurdish region must hand over 250,000 barrels per day of production to Baghdad in return for budget transfers, but the federal government says the Kurds have not met this obligation.