Iraqi government and Kurdistan region sign deal to restart oil exports

Agreement is a win for Baghdad, which wanted to assert its right to manage Kurdistan region's oil sector

The Kawergosk oil refinery, about 20km east of Erbil in Iraq's Kurdistan region. AFP

Iraq's government on Tuesday struck a deal with authorities in the Kurdistan region to restart oil exports, a major step forward in the long-running dispute over rights to develop and sell fuel.

The deal is a win for Baghdad, which had wanted to assert its right to manage the Kurdistan region's oil resources since the 2003 US-led invasion that toppled Saddam Hussein gave the Kurds more autonomy.

Baghdad said the agreement with the Kurdistan region would be enacted immediately.

“This agreement underlines the serious and sincere desire by the federal government and the Kurdistan Regional Government to face all the problems and obstacles that we inherited,” Iraqi Prime Minister Mohammed Shia Al Sudani said.

On Tuesday evening, KRG Prime Minister Masrour Barzani said the new deal would “serve the interests of all Iraqis”.

Mr Barzani said both sides “agreed that we now have a framework for a draft budget law and, in the near future, discussions can begin on a new federal oil and gas law”.

Last week, Mr Al Sudani said that a law to govern how Baghdad and the semi-autonomous Kurdish region jointly managed oil and gas would hopefully be ready within six months.

Several drafts of the federal oil and gas law, which had been called for to clarify brief articles on co-operation in the country's 2005 constitution, have languished since 2011 amid an 18-year disagreement on energy rights between Baghdad and Erbil.

Recent negotiations to restart production appear to have been intensive, and Mr Barzani thanked a “technical delegation from both sides for their dedication and hard work over the last couple of weeks”.

Iraqi government spokesman Bassim Al Awadi said the deal stipulates that 400,000 barrels of oil will be exported from Kurdistan per day and handled by the federal State Oil Marketing Organisation.

But for the first time, Kurdistan will have a representative at Somo, potentially with the role of deputy head, Mr Al Awadi said.

A committee comprising two representatives from both the Ministry of Oil and the Kurdistan Natural Resources Ministry will oversee the marketing of Kurdish oil until this year's budget is approved.

Oil revenue will be deposited in a central bank account, or another bank, and will be overseen by Baghdad, but will be under the control of the KRG. Baghdad will have access to audit the account.

Mr Al Sudani said both sides were working to “benefit all Iraqi people”, whether in Kurdistan or other provinces.

Mr Barzani travelled to Baghdad to finalise the agreement with Mr Al Sudani.

He hailed the agreement as a “crucial step” towards ending the long-running dispute.

The deal “creates a positive and safe atmosphere to finally approve the national oil and gas law”, he said.

'Temporary' deal

The KRG had said Iraq's 2005 constitution gave it the right to sign agreements with oil companies and states without consulting Baghdad.

But Baghdad maintained the region had no right to sign deals and said exports had to go through state-run pipelines and be marketed by the federal government's State Organisation for Marketing of Oil.

Last month, Iraq won an arbitration case against Turkey for allowing the Kurdistan region to export oil without Baghdad's consent.

The ruling by the International Chamber of Commerce in Paris stopped about 450,000 barrels per day from being exported from the Kurdistan region and oilfields in northern Kirkuk.

The new deal is seen as a last-minute solution as northern Iraq's oilfield shutdowns have led to storage rapidly filling up and increasing the risk of rising costs to resume production.

In the absence of exports, the KRG was under additional strain to pay off its debt to the oil companies, estimated at about $2 billion, and its debt to oil traders, which is thought to be about $4 billion.

Details as to how the new deal will affect the Kurdish region's revenue and debt payments have not been revealed, although the draft federal budget says the region will receive 12.67 per cent of federal revenue — over $1 billion per month if current prices hold.

There was no clarification on the status of oil contracts signed by the KRG, which Baghdad has long considered to be in breach of the country's constitution as they allow oil companies a share in Iraq's oil, which “belongs to the Iraqi people”, according to the 2005 constitution.

The Iraqi government on Tuesday simply said that the Ministry of Oil would help the KRG in the negotiations with four international companies with contracts to market Kurdistan oil “to reach acceptable solutions”.

Mr Al Sudani and Mr Barzani said the agreement was temporary until the 2023 budget was approved.

“Halting the export of the region’s oil harms Iraq’s revenues,” Mr Al Sudani said.

Both governments will work towards passing a federal law detailing the share of funds from oil and gas exports, he added.