Baghdad and Erbil near deal to resume Kurdistan oil exports through Turkey

BAGHDAD — Iraq’s state oil marketing company SOMO said Tuesday that Baghdad and Erbil are close to finalizing an agreement to restart crude exports from the Kurdistan Region through Turkey’s Ceyhan port, after months of negotiations involving international oil firms.

SOMO Director Ali Nizar told the state news agency, “Great effort was made during the past months to reach an agreement between Baghdad and Erbil. The responsibility was high on the Oil Ministry, represented by all its departments and companies, including SOMO, as well as the Ministry of Natural Resources in the region, and the other important side is the international companies operating in the region.”

He said, “The agreement has reached final stages. We have reached a firm mechanism to implement this agreement and pump the quantities produced from the region. We are waiting for pumping procedures after finishing all details, and some matters will be documented in writing.” Nizar added that “international companies need assurances regarding payment of their dues after exports, and SOMO has worked to provide these assurances. The government will announce the date soon after the official signing of this agreement.”

Oil exports from the Kurdistan Region have been halted since March 25, 2023, when Turkey shut the Iraq–Turkey Pipeline after the International Chamber of Commerce in Paris ruled in favor of Baghdad in a long-running arbitration case. The tribunal found Ankara had violated a 1973 pipeline agreement by allowing the Kurdistan Regional Government to independently export oil without federal approval.

The suspension has cost both Baghdad and Erbil billions of dollars in lost revenue and disrupted operations for international oil companies working under production-sharing contracts in the Kurdistan Region, many of which have reduced activity or suspended new investment.

The Association of the Petroleum Industry of Kurdistan, which represents several foreign operators, said in July that its members are ready to resume exports “as soon as written agreements are executed that honor our existing contracts which are governed by international law.” The group has demanded payment certainty, resolution of arrears, and respect for its contracts with the KRG.

On Sept. 23, Norwegian oil operator DNO said it welcomed reports that agreements had been reached between Baghdad, Erbil, and international oil companies to resume exports. The company said it is eager to restart exports but only under agreements that ensure payment security for both past arrears and future sales in line with its production-sharing contracts.

Executive Chairman Bijan Mossavar-Rahmani said, “DNO’s exposure is different than that of other international oil companies. Importantly, as the largest producer, the arrears owed to us by the KRG dwarf those of many of the others, which also means that our exposure to future payment risk is also substantially higher than any other company.” He added that DNO had made proposals to Erbil to resolve the issue through what he described as “easy fixes that can be quickly agreed.”

Iraq’s Oil Minister Hayan Abdul Ghani has said Baghdad and Ankara are ready to reopen the line but disagreements remain over the Kurdistan Region’s internal consumption quota. Baghdad set the quota at 46,000 barrels per day, while the KRG has sought 65,000. He also said Baghdad proposed a $16-per-barrel payment mechanism and the appointment of an independent auditor to verify costs.

Negotiators from Baghdad, Erbil, and international oil firms have held intensive meetings in recent days to finalize the deal, which officials say will be announced soon after the agreement is formally signed.