Oil producers reject blame for oil exports impasse

ERBIL, Kurdistan Region - Oil producers in the Kurdistan Region on Monday rejected reports blaming them for the continuing impasse on Kurdish oil exports, stating that there has been no joint discussion with Iraqi and Kurdish authorities on the matter for months.

The Association of the Petroleum Industry of Kurdistan (APIKUR) said in a statement on Tuesday that “recent media reports that mistakenly point to a lack of flexibility from IOCs [International oil companies] as the reason for the continuing impasse on resumption of oil exports via the ITP [Iraq-Turkey pipeline].” 

“Such reports suggest that there are ongoing talks that have stalled due to an intransigent position taken by IOCs. However, no joint discussions between IOCs and representatives of the KRG [Kurdistan Regional Government] and the GoI [Government of Iraq] have occurred since January 7-9, 2024,” it added.

Oil exports from the Kurdistan Region through the Iraq-Turkey pipeline have been halted since March 2023 after a Paris-based arbitration court ruled in favor of Baghdad against Ankara, saying the latter had breached a 1973 pipeline agreement by allowing Erbil to begin independent oil exports in 2014. 

Despite several talks between Kurdish, Iraqi, and Turkish officials, the exports have yet to resume, and many international oil companies have suspended production.

The oil association reiterated that they are ready to resume oil exports “contingent upon reaching agreements that provide for payment surety for past and future exports, direct payment and preservation of commercial terms.”

“Should such agreements require modifications to existing contracts, APIKUR member companies are willing to consider this if agreed between the GOI, KRG and individual IOCs,” APIKUR said.

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.

Baghdad has repeatedly said that the PSCs between the IOCs and the KRG are a violation of the Iraqi constitution, stressing that the contracts need to be amended into service contracts such as the ones in federal Iraq before exports can resume.

APIKUR claims that the KRG owes IOCs in the Kurdistan Region over $1 billion between September 2022 and March 2023. The piled-up debts are a result of the fact that many of the contracts with the IOCs signed in the early stages of the KRG’s independent oil sales were signed with prepayment schemes.

In March, the Iraqi oil ministry blamed the IOCs 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.

The ministry’s accusation came in response to a statement by APIKUR claiming that the Iraqi federal government has not taken the required actions to reopen the pipeline, which it labeled as a “blatant interference” in Iraqi affairs.

The lack of agreement to restore oil exports “has cost Iraq more than $14.5 billion in lost export revenues,” APIKUR said in a statement last month.

Over half of KRG federal investment funds payment depends on oil export resumption

The impasse on oil exports directly affects the Kurdistan Region's share of the federal budget, as it will slash Erbil’s share of federal investment funds in half.

Iraq’s planning ministry announced on Saturday that the Kurdistan Region’s share of federal investment funds is 4.8 trillion dinars ($3.67 billion).

Abdul Zahra al-Hindawi, the spokesperson for the Iraqi planning ministry, told Rudaw on Monday that 4.8 trillion dinars have been allocated to the Kurdistan Region, with 2.7 trillion dinars specified for the oil licensing rounds.

“This payment is conditional on exporting the [Kurdistan] Region's oil through SOMO [State Oil Marketing Organization] and transferring the oil revenue to the federal government and the federal finance ministry,” Hindawi said.

Iraqi Prime Minister Mohammed Shia’ al-Sudani and his cabinet finalized a draft budget bill last week that seeks to increase spending for 2024. In June 2023, Iraq passed a three-year budget that included a record $152 billion in spending, of which the Kurdistan Region’s share is 12.6 percent.

Federal budgets routinely require intense negotiations between Erbil and Baghdad. The cash-strapped KRG has repeatedly accused Baghdad of not making regular payments of its share of federal funds. Baghdad claims it has fully implemented its financial obligations to the KRG.

 

Nahro Mohammed contributed to this report

Updated at 9:38