Baghdad proposes $16 per barrel for Kurdistan oil companies, seeks resolution to export halt

BAGHDAD — Iraq’s Council of Ministers approved a proposal on Tuesday to address compensation for production and transportation costs of oil produced in the Kurdistan region. Although the final rate is yet to be determined, Baghdad has proposed an advance rate of $16 per barrel. The directive also requires the immediate delivery of Kurdistan Region’s oil to the State Oil Marketing Organization, or SOMO, and the Ministry of Oil.

Narmin Maarouf, a member of Iraq’s Finance Committee, confirmed to 964media that the Council of Ministers approved the proposal, amending Clause 12/Second/C of the three-year Budget Law, No. 13 of 2023. The amendment mandates the federal Ministry of Finance to allocate $16 per barrel for foreign oil companies working in the Kurdistan region from budget resources to cover production and transportation costs, which are tied to the law’s production target of 400,000 barrels per day.

According to a statement from Prime Minister Mohammed Shia Al-Sudani’s media office, the Ministry of Finance will compensate the Kurdistan Regional Government from sovereign expenditures for oil production and transportation costs. The compensation applies to oil received by SOMO or the Ministry of Oil. Each field’s costs will be assessed by an internationally specialized consulting entity, which will be agreed upon by the Federal Ministry of Oil and the KRG’s Ministry of Natural Resources within 60 days of the law’s enactment. If no agreement is reached within this timeframe, the Federal Council of Ministers will select the consulting entity.

The KRG welcomed the proposal. The KRG described the proposal as a “constructive step” toward resolving long-standing issues related to oil export routes.

In a statement following a KRG Council of Ministers meeting, Kamal Mohammed Salih, acting minister of natural resources and the KRG’s chief negotiator, presented recent outcomes of discussions with Iraq’s Federal Ministry of Oil and key oil companies. “We welcome this proposal as a constructive step toward resuming oil exports from the Kurdistan Region through SOMO,” the KRG said.

The statement emphasized that resuming oil exports through SOMO would be in the “best interests of both the federal and regional governments, as well as the oil companies involved.” The KRG urged Iraq’s parliament to act quickly, noting that an amendment to Article 12 would “provide an essential opportunity to resolve this issue and allow Kurdistan’s oil production to re-enter global markets promptly.” The KRG added that this would “undoubtedly contribute significantly to increasing national revenues and advancing Iraq’s energy sector.”

Oil exports from Iraq’s Kurdistan region through the Iraq-Turkey pipeline have been halted since March 2023, following an international arbitration ruling that Turkey breached a 1973 agreement by permitting Kurdish oil exports without authorization from Baghdad between 2014 and 2018.

The Federal Ministry of Finance will compensate production and transportation costs in advance at a rate of $16 per barrel, to be settled retroactively after the completion of a review by a consulting entity.

Maarouf explained that the $16 per barrel expenditure is contingent on Kurdistan Region oil being exported through SOMO or utilized domestically by the Ministry of Oil.

Under the regulation, the $16 per barrel expense will be considered a preliminary estimate until a designated international technical advisory body, overseen by the Ministry of Oil in coordination with the KRG’s Ministry of Natural Resources, conducts a detailed review. This process is expected to conclude within 60 days of the law’s implementation and “aims to ensure fair oversight of production and transportation costs from all Kurdish oilfields,” she said.

Once determined, the consulting entity will estimate production and transportation costs for each field and submit these estimates to the Federal Ministries of Oil and Finance and the KRG. These costs, calculated per barrel, will be used to determine compensation. The Federal Ministry of Finance will handle payments to the KRG based on the number of barrels received by SOMO or the Ministry of Oil.

Additionally, the decision mandates that oil produced in the Kurdistan region must be delivered promptly to SOMO or the Ministry of Oil. “The Federal Ministry of Finance will compensate production and transportation costs in advance at a rate of $16 per barrel, to be settled retroactively after the completion of the aforementioned consulting entity’s review,” the statement concluded.

Maarouf continued, “Although the Kurdistan region’s oil exports have been halted for over a year and seven months, causing significant financial losses to both Iraq and the region’s economy, the recent decision by Iraq’s Federal Council of Ministers is seen as an important step to resolve a longstanding issue between Erbil and Baghdad.”