Oil exports from Kurdistan to resume after suspension since 2023
- Key moments before the resumption
- Suspension of exports
- Consequences of the suspension
- Resumption of the oil market
Oil exports in the Kurdistan region, which had been suspended since the beginning of 2023 due to a breach of the 1973 treaty, are now set to resume following an agreement between the Iraqi government and the Kurds.
This development marks an important step towards resolving a long-standing dispute over oil revenues and governance between the Kurdistan Regional Government (KRG) and the Federal Government in Baghdad.
Husain Al-Chalabi, adviser to the Iraqi prime minister, said: ‘Kurdistan's oil will be exported through Turkey under SOMO supervision, and all issues related to the oil dossier have been resolved’.
To finalise the remaining procedures and thus begin the resumption of oil exports from Kurdistan, a delegation from the Iraqi Ministry of Oil, accompanied by representatives of the State Organisation for the Marketing of Oil (SOMO), will visit Erbil on Tuesday to finalise the remaining procedures and thus begin the resumption of oil exports from Kurdistan.
In addition, the Iraqi Oil Minister, Hayyan Abdul Ghani, emphasised the importance of the talks in Erbil, stating: ‘In a week the formalities will be completed and exports will resume, as there are no remaining obstacles’.
Key moments before the resumption
Iraq was seeking to resume the transport of oil extracted from the Kurdistan region via Turkey to international markets, to compensate for the losses caused by the disruption of the oil market since the beginning of 2023, which have been estimated at 19 billion dollars.
On 15 February, the Iraqi Foreign Minister, Fuad Hussein, confirmed that the government was working to resolve the technical problems with the Regional Government of Kurdistan and thus resume oil exports to Turkey.
At the beginning of February, the Iraqi Parliament approved an amendment that allows these exports to resume from the autonomous region of Kurdistan. This stipulates that the management of oil revenues will be streamlined and the KRG will be compensated for production and transportation costs.
It also states that the oil produced in Kurdistan will be delivered directly to SOMO or the Federal Ministry of Petroleum, while the Federal Ministry of Finance will provide an advance of $16 per barrel, which was previously worth $6, in order to cover production and transportation costs.
With the legal framework already agreed, the technical issues are now being discussed between the oil companies and the federal and regional governments, as Hussein himself confirmed during the Munich Security Conference. On this point, the minister already said that negotiations could begin this week and be concluded in a few days.
Suspension of exports
Oil exports from Kurdistan to the Turkish port of Ceyhan were suspended in March 2023 following a ruling by the arbitration authority, which the Iraqi foreign minister has described as a ‘minor issue’ that could be resolved while the Baghdad-Ankara pipeline contract is being negotiated in 2025.
Between 2014 and 2018, the International Government Chamber ordered the Turkish government to pay Baghdad $1.5 billion in compensation for unauthorised exports by the Kurdistan Regional Government in those years, for which Turkey stopped the flow of oil through the Kurdistan pipeline.
As determined in the arbitration court, Turkey had violated the terms of the 1973 treaty, which originally stipulated that the Kirkuk-Ceyhan pipeline should be used to transport Iraqi oil under the supervision of the central government in Baghdad. But the Regional Government of Kurdistan did not comply and, apparently, Turkey had allowed these crude exports without the approval of the Iraqi Government.
Consequences of the suspension
Following the suspension of the Iraq-Turkey pipeline, Iraqi crude oil exports have been reduced to 500,000 barrels per day, equivalent to 0.5% of global oil supplies.
This reduction is due to the fact that there is no alternative gas pipeline. As Hussein stated, resuming exports would boost economic security in the midst of geopolitical uncertainty.
On the one hand, Iraq's oil production is still held back by the OPEC and OPEC+ agreements, although Iraqi officials see the reopening of the pipeline as a strategic necessity.
And, on the other hand, negotiations to restart the pipeline had also stalled due to conflicting demands made by the Kurdistan Regional Government, foreign companies and the Federal Government.
Resumption of the oil market
Regarding the resumption of oil flows in the region, industry experts and officials state that the re-establishment of these flows could help to compensate for the production cuts and stabilise the Kurdistan markets.
On the subject of daily production, the Minister for Oil, Hayan Abdul Ghani, stated that Iraq plans to transport approximately 300,000 barrels per day when operations resume.
For its part, Turkey has repeatedly stated that the pipeline is operational and leaves the responsibility of resuming flows in the hands of Iraq, an issue in which it also has the explicit support of the United States.
Despite this, Baghdad is facing a delicate balancing act: although the resumption of oil exports from Kurdistan could ease market pressures, Iraq, which is OPEC's second largest producer after Saudi Arabia, is still subject to the organisation's production limits.
It should be noted that Iraq has an average production of four million barrels per day and has the fifth largest proven oil reserves in the world, with a total of 148 billion barrels, concentrated in the southern and western regions.
The agreement represents a potential change in relations between the Federal Government and the KRG, as it encourages greater economic stability and cooperation. Despite some challenges regarding technical and logistical coordination with Turkey, recent developments point to a clear path towards the restoration of oil exports from Kurdistan.