According to four sources familiar with the matter, the federal government of Iraq and the Kurdistan Regional Government (KRG) are nearing a deal that would facilitate the resumption of northern oil exports.
This development comes after Turkey suspended pipeline flows from the Kirkuk fields in northern Iraq’s semi-autonomous Kurdistan region to its port of Ceyhan on March 25, following its loss in an arbitration case filed by Baghdad.
During a recent case, Iraq accused Turkey of violating its 1973 pipeline agreement by permitting the Kurdish government to export oil without Baghdad’s approval between 2014 and 2018.
The suspension of the approximately 450,000 barrels per day (bpd) flows constituted only around 0.5% of the global oil supply. However, the stoppage compelled oil firms operating in the region to either halt output or shift production into quickly filling storage tanks. This situation ultimately contributed to the recent increase in oil prices, which approached $80/bbl.
Two sources, including a senior Iraqi oil official and a KRG official, have reported that an initial agreement has been reached between the federal government of Iraq and the Kurdistan Regional Government (KRG) regarding the joint exportation of Iraq’s northern oil exports. Under the agreement, Iraq’s state-owned marketing company SOMO and the KRG’s ministry of natural resources (MNR) will work together on the exports, and the resulting revenues will be placed in an account managed by the MNR and supervised by Baghdad.
The agreement is currently under review by Iraq’s prime minister, with a decision expected by Monday, according to the KRG official. The KRG declined to comment, and the Iraq Oil Ministry spokesman was not available outside of regular business hours. The two parties have also agreed to continue holding meetings to address other outstanding issues following the resumption of oil exports.
According to trading sources, Kurdistan had ceased payments on crude cargo deals valued at $6 billion owed to energy traders like Vitol and Petraco due to their oil exports being at a standstill.
One of the issues causing difficulties in the discussions so far is a pending arbitration case concerning the 1973 pipeline agreement, which is yet to be resolved for the period from 2018 onwards. Three sources have told Reuters that Turkey insists on the settlement of this case before reopening the pipeline, which could take up to two years to conclude, as per one source.
A Turkish senior official revealed that Turkey has not yet been informed of the preliminary agreement by either the KRG or federal Iraqi officials and that talks are ongoing.
