Oil exports from the Kurdistan Region through the Iraq-Turkey pipeline have been halted since March 23, 2023 after a Paris-based arbitration court ruled in favor of Baghdad against Ankara, saying the latter had breached a 1973 agreement by allowing Erbil to begin independent oil exports in 2014.
The Association of the Petroleum Industry of Kurdistan (APIKUR) on Saturday claimed that the Iraqi federal government has not taken the required actions to reopen the pipeline, adding that there has been no real progress in resuming the exports a year after the process was put on hold.
The Iraqi oil ministry on Monday blamed the international oil companies (IOC) working in the Kurdistan Region for not reopening the pipeline, stressing that halting the process was not the decision of Baghdad and that the federal government “is the most affected” by the halt in exports.
“One of the main reasons for the pause in exports is the refusal of the foreign companies working in the Kurdistan Region to officially hand over their production to the Regional Government to be exported in accordance with the in-force federal budget law,” said the oil ministry in a statement.
The statement added that the Iraqi federal budget obliges the Kurdistan Region to hand over its oil production to Baghdad to be exported, noting that there are reports from OPEC and “reliable international secondary sources” that confirm there are around 200 to 225 thousand barrels of oil produced on a daily basis in the Kurdistan Region “without the knowledge or approval” of the oil ministry.
Article 13 of the Iraqi federal budget obliges the Kurdistan Region to hand over, on a daily basis, at least 400,000 barrels of crude oil to Iraq’s State Oil Marketing Organization (SOMO) to be exported through Turkey’s Ceyhan port, or be used domestically in case it is not exported.
The contracts between the Kurdistan Regional Government (KRG) and the IOCs has not been approved by the federal government, according to the statement which noted that the oil ministry has previously asked for copies of the contracts to review and try to reach new contracts that would be in accordance with Iraqi constitution, but they have yet to receive them.
“How is it permissible to demand that this ministry abide by contracts that it has not seen and does not recognize, and which are in principle contrary to clear and binding judicial decisions?” the oil ministry asked.
The IOCs and the KRG are bound by Production Sharing Contracts (PSCs). 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.
The statement from the oil ministry also noted that, in accordance with the Iraqi federal budget, the average cost for producing one barrel of oil is $6.9, while the Kurdistan Region IOCs are asking for three times that amount and repayment of billions of dollars of debts that are “unknown to the federal government.”
APIKUR claims that the KRG owes IOCs in the Kurdistan Region over $1 billion between September 2022 and March 2023. The piled up debts mainly come as many of the contracts with the IOCs signed in the early stages of the KRG’s independent oil sales were signed with prepayment schemes.
APIKUR spokesperson Myles Caggins told Rudaw English in August that 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. 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.”
The Iraqi federal government has previously called for resuming the Kurdish oil exports and met with representatives of the Kurdistan Region IOCs in hopes of compromising on “acceptable legal solutions” but the foreign companies have not been flexible to change their stance, the statement added.
The APIKUR statement “included blatant interference in Iraqi internal and external sovereign affairs that have nothing to do with the work of companies,” said the oil ministry in its response, stressing that “foreign companies wishing to work in Iraq must respect the country’s sovereignty, laws, and judicial decisions, and adapt their conditions accordingly, instead of interfering in sovereign affairs related to Iraq’s foreign policy.”
The closure prevents the export of 450,000 barrels of crude oil per day from the Kurdistan Region, costing Baghdad and Erbil billions of dollars in losses.
