ERBIL, Kurdistan Region - The inability to reach a satisfactory agreement regarding payment would leave oil firms with no alternative but to file a complaint at an arbitration court in London, the spokesperson of an association of companies warned on Wednesday.
“The Iraq-Turkey pipeline could reopen but the APIKUR [Association of the Petroleum Industry of Kurdistan] members would not produce oil unless there is an agreement and a full understanding of how much we would get paid,” APIKUR spokesperson, Myles Caggins, told Rudaw English.
The association consists of international oil and gas companies that are directly or indirectly involved in the production of the Kurdish oil. Its members include DNO, Genel Energy, Gulf Keystone Petroleum, HKN Energy, and ShaMaran Petroleum.
Caggins said the oil companies would receive $6 per barrel based on discussions that have taken place with Baghdad, stressing that this is “not enough.”
“Going to court is the last thing that companies want to do,” he stated but warned that if an agreement is not reached, APIKUR members would take the matter to a London arbitration court.
Kurdish oil stopped flowing through the Iraq-Turkey pipeline, known as Ceyhan, after a Paris arbitration court ruled in favor of Baghdad in March, saying that Ankara had breached a 1973 agreement when it allowed the Kurdistan Region to begin independent oil exports in 2014.
Prior to the halt, around 400,000 barrels a day were being exported by Erbil through Ankara, in addition to some 75,000 barrels of Kirkuk oil daily through the same pipeline.
The spokesperson said that there is no timeframe or prediction of when oil exports might resume from the Kurdistan Region, adding that the association encourages further talks between Erbil, Baghdad, and Ankara.
Oil companies have scaled back their production in the wake of the half of exports and lack of payment from the Kurdistan Regional Government (KRG).
“Companies have reduced spending by 400 million [dollars] in the Kurdistan Region in 2023 and we are assessing what our spending will be in 2024,” Caggins said.
"Oil is the bread and butter of this region,” he added.
"The arbitrators do not feel the pain, the people feel and the uncertainty,” Caggins said, noting that layoffs have been made by companies as a way to cope with the economic constraints.
The KRG is heavily reliant on oil revenues and an inability to sell its crude has severely impacted its economy. On Tuesday, Safeen Dizayee, head of the KRG’s Department of Foreign Relations, said that Iraq and the Kurdistan Region have so far lost around five billion dollars.
International oil companies (IOCs) and the KRG are bound by Production Sharing Contracts (PSCs) which are governed by British law, hence any disputes would have to be taken to the London Court of International Arbitration.
Under the Kurdistan Region’s PSC model, the IOCs cover the entire cost of production while the KRG receives the lion’s share of the profits from successful projects.
According to the highly-contentious Iraqi federal budget passed in June, the KRG is obliged to sell 400,000 barrels of crude oil through Iraq’s national oil marketing body otherwise Baghdad would use Kurdish oil domestically.
APIKUR has previously said that the KRG would be reliant on the IOC production to achieve the number specified in the budget.
Calls for drafting a joint hydrocarbon law between Erbil and Baghdad have resurfaced since the formation of the new Iraqi government under Prime Minister Mohammed Shia’ al-Sudani in October, after a ruling from Iraq’s top court in February 2022 deeming the Kurdistan Region’s oil and gas law “unconstitutional” escalated tensions between the KRG and the federal government.
Numerous talks have been underway since between delegations from Baghdad and Erbil, but an agreement is yet to be presented to the Council of Ministers.
"It is very real that this is impacting the entire economy of the Kurdistan Region,” Caggins said. "This is a big deal and hundreds of millions of dollars have been invested and investments are always a gamble but the current impasse is not like a typical gamble,” he stated, referring to how situations of force majeure such as earthquakes would be understandable but that in this case “it is all politics.”
Caggins added that the companies are ready to resume their production and employees are keen to return to work, expressing his hope that talks between Iraq, the Kurdistan Region, and Turkey would result in a positive conclusion.
In April, Sudani and Kurdistan Region Prime Minister Masrour Barzani reached a deal to resume exports but it is unclear what stage discussions with Ankara, who claims to be conducting inspections following a devastating earthquake, are at. Last week, Turkish Foreign Minister Hakan Fidan and Energy and Natural Resources Minister Alparslan Bayraktar met with Iraqi and Kurdish officials.