ERBIL, Kurdistan Region - The Iraqi Council of Ministers on Tuesday amended the federal budget to authorize compensation to the Kurdistan Regional Government (KRG) for oil production and transportation costs, setting the rate at $16 per barrel, a long-sought agreement aimed at resuming exports from the region’s oil fields.
The council approved an amendment to the three-year budget law, according to a statement from Prime Minister Mohammed Shia’ al-Sudani’s office.
The finance ministry set compensation costs “in advance at a rate of $16 per barrel, to be settled retroactively after the completion of the aforementioned consulting entity’s review.”
“Production and transportation costs for each field will be estimated fairly by an internationally specialized consulting entity,” read the statement from Sudani’s office, adding that the consulting entity shall be selected by mutual agreement between the federal and KRG oil ministries within 60 days.
If an agreement cannot be reached within the given timeframe, the statement said the Council of Ministers will appoint a consulting entity to undertake “submitting estimated production and transportation costs.”
The amendment authorizes the Iraqi finance ministry to compensate the KRG for “sovereign expenditures related to the production and transportation costs of oil produced in the region,” which is managed by the State Oil Marketing Organization (SOMO) and the federal oil ministry.
Oil exports from the Kurdistan Region through the Iraq-Turkey pipeline have been suspended since March 2023, following a ruling by a Paris-based arbitration court in favor of Baghdad. The court found Ankara in breach of a 1973 pipeline agreement by allowing Erbil to export oil independently since 2014.
“Today's decision of the Federal Council of Ministers is an important step to resolve one of the outstanding issues between the Kurdistan Region and Baghdad,” Narmin Maarouf, a member of Iraq’s finance committee, said in a Facebook post.
Maarouf highlighted “many differences between the nature of the oil fields in the Kurdistan Region and Iraq, except for the differences between the oil contracts of both sides.”
In late September, the finance committee of the Iraqi parliament and the KRG reached an initial agreement to review the Kurdish government’s contracts with international oil companies, with the goal of restarting oil exports
The KRG, in establishing its independent oil sector, signed production-sharing contracts with IOCs, which stipulate that the companies cover all production costs. However, setting a standardized cost per barrel has been a point of contention between the KRG and the federal government.
In March, the Iraqi oil ministry said that in accordance with the federal budget, the average cost for producing one barrel of oil is $6.90, while the IOCs operating in the Kurdistan Region were asking for three times that amount, as well as the repayment of billions of dollars of debts that are “unknown to the federal government.”
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