Deal to resume oil exports from northern Iraq proves elusive

Iraqi government struck provisional deal with semi-autonomous Kurdish region on April 4

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

About 450,000 barrels of oil trapped in the Kurdish region and one major Iraqi oilfield could flow again in the next two weeks, Iraq's Oil Minister said on Wednesday, following an April 4 deal between Baghdad and Erbil.

But Hayan Abdel-Ghani said that a deal to resolve more than 15 years of disputes over exports from the Kurdish region still faces technical hurdles.

“We haven't reached an agreement with the Kurdish side,” the Iraqi minister said on Wednesday.

While both Baghdad's Ministry of Oil and the Kurdish Ministry of Natural Resources agreed to jointly market oil exports from the region and deposit revenue in a jointly managed account in the April 4 deal, there remain disagreements over where the account will be held, Reuters reported.

A pipeline between Iraq and the Turkish port of Ceyhan had been out of service since late March after the International Chamber of Commerce ruled on a long-standing complaint from Baghdad, which had insisted all oil exports be approved by the federal government.

Burning gas flares at the Bai Hassan oilfield, near northern Iraqi city of Kirkuk. AFP

Reuters estimates that the shutdown cost at least $1 billion in oil revenue.

On Monday, a senior adviser to Iraqi Prime Minister Mohammed Shia Al Sudani told The National that relations between Baghdad and Erbil were progressing well after the deal, but that there were unresolved issues with “oil brokers”.

“We have a lot of details about the mistakes that have been done by the Kurdish Regional Government when they export the oil extracting from their land,” he said.

Industry experts say the Kurdish Regional Government owes at least $1.5 billion to oil traders including Vitol, and that total oil sector debt for the semi-autonomous region could be as high as $6 billion.

The 1973 Iraq-Turkey pipeline agreement was struck before the Kurds — who gained a semi-autonomous government after the defeat of Saddam Hussein’s forces in northern Iraq in 1991 — began exporting oil independently in 2012.

While Baghdad had previously objected to foreign oil companies striking deals with the Kurdish Regional Government, it was only when lorries began carrying exported oil in 2012 that the row intensified. Baghdad cut the Kurdish region’s budget, plunging it into a financial crisis.

The two sides clashed in 2017 over a dispute concerning the mixed Iraqi-Kurdish city of Kirkuk, in a governorate that overlooks Iraq’s oldest producing oilfield. About 75,000 barrels of oil from the Iraqi-government-owned field were also trapped by the Iraq-Turkey pipeline shutdown.

Iraq’s 2005 constitution attempted to outline how the country's oil belongs to “all the people of Iraq in all the regions and governorates”, but the government and the Kurdish region have clashed bitterly over energy rights.

The Kurds have claimed that one of a number of disputed parts of the constitution that deals with energy, Article 111, gives them the right to exploit energy resources, but other parts say energy resources cannot be developed unilaterally and work must be done in co-ordination with Baghdad.

The largest Kurdish political party, the Kurdish Democratic Party based in Erbil, has softened its position on oil exports since the arbitration award, agreeing to cut a deal with Baghdad on the joint marketing of oil and a fixed percentage of oil revenue for the Kurdish region.

The April agreement is intended to bring a Kurdish Energy Ministry official into the federal State Oil Marketing Organisation while depositing revenue from Kurdish oilfields into a jointly managed account.

The arbitration ruling also required Baghdad to pay Turkey nearly $2 billion in compensation for unpaid fees for using the pipeline across its territory, a claim reportedly going back decades, while Turkey must pay Iraq around $1.5 billion for allowing the Kurds to use the pipeline between 2014 and 2018.