Iraq Agrees on Oil Plan With Kurds

Iraq approved a plan for its semi-autonomous Kurdish region to transfer oil to Baghdad, a step toward resuming exports that have been halted for more than two years. 

The Kurdistan Regional Government will supply Iraq’s state oil marketer SOMO with 230,000 barrels a day as part of a deal for Baghdad to release funds for salaries in the northern region, people familiar with the matter said. The transfer of the crude is a crucial element for an agreement between the federal and semi-autonomous administrations to restart exports through a pipeline to Turkey’s Mediterranean coast.

There have been numerous attempts to resume oil shipments since the pipeline was halted in March 2023 following a payments dispute. International companies operating in the Kurdish region have said exports can only kick off when contracts are in place and they have clarity on compensation, including future payments and past dues. Earlier this week, the firms reiterated their demand, while saying talks in the government to restart exports “have intensified.”

Any restart of exports would also depend on how quickly companies are able to bring online fields that were shut this week following a barrage of drone attacks. About 200,000 barrels a day of output has been halted, according to an official in the Kurdistan Regional Government.    

The latest steps come just as the Organization of the Petroleum Exporting Countries and its allies have started boosting production quotas, giving some members the room to raise exports. Additional shipments would likely add to a supply surplus forecast for later this year.  

Iraq, however, has been keen to increase production in the long-term and boost oil revenue after years of war and internal strife. The halted Kurdistan exports have resulted in about $25 billion in lost revenue, Kurdistan Regional Government Prime Minister Masrour Barzani said last month.

The regional government said in a statement that the federal cabinet approved a mutual agreement between the two administrations, which would allow Baghdad to “send the salaries and rightful financial entitlements of the Kurdistan region.” It didn’t give details of the agreement. 

The pipeline saga started in early 2023 after Turkey halted the link that carried about half a million barrels of oil daily following an arbitration court’s order to pay Iraq $1.5 billion. Ankara had claimed the pipeline was shut because it needed repairs after two massive earthquakes in February that year, but later put the onus on Baghdad to restart operations. But financial and legal disagreements held back the resumption.

In February this year, Iraq’s parliament passed a plan to allow Baghdad to pay oil companies in Kurdistan an initial fee of $16 a barrel for production and transportation, which is higher than what it had proposed paying earlier.

Oil companies including DNO ASA, Genel Energy Plc and Gulf Keystone Petroleum Ltd. operate in the Kurdistan region.

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