KRG in talks with companies to reduce oil production costs: PM Barzani

ERBIL, Kurdistan Region — The Kurdistan Regional Government (KRG) is in talks with production companies to reduce the cost of oil production in an effort to boost Erbil’s revenues, Prime Minister Masrour Barzani said in a press conference on Wednesday.

The PM said they “expect to make more savings” in the future as the cabinet has finally appointed a minister to run the Ministry of Natural Resources, which was previously run by Barzani himself.

The Region produces an average of 450,000 barrels of oil per day (bpd), according to the PM, with 25,000 of this amount for local use. 

Barzani added that the Kurdistan Region’s oil is sold for nearly $10 cheaper than the price of Brent, the most commonly-traded oil, due to its lower quality and higher production costs.

“The price of our oil is cheaper than Brent oil due to some factors: the quality of our oil is lower than the quality of Brent [and] we pay the full transportation fees, not the federal government,” Barzani said during the press conference in Erbil.

A barrel of Brent oil was sold for more than $61 on Wednesday.

However, Barzani denied reports that KRG sells its oil for $10-11 cheaper than the Iraqi government. Baghdad sells its oil through the State Organization for Marketing of Oil (SOMO), while Erbil exports its oil independently. 

The KRG has been experiencing an economic crisis since 2014, due to the fight against the Islamic State (ISIS), the frequent suspension of its budget from Baghdad, a drop in oil prices and, most recently, the spread of coronavirus. 

The issue of oil has long been a thorny one between Erbil and Baghdad. The KRG has operated an independent oil and gas sector since 2006 and later began exporting its oil to the international market via a pipeline through Turkey in 2013.

Years of tensions over the independent oil sales came to a head in 2014 when then-PM Maliki suspended the Kurdistan Region’s share of the federal budget – leaving hundreds of thousands of public sector employees unpaid for months.

In December 2019, Baghdad agreed to send Erbil a 12.67 percent share of the federal budget in exchange for 250,000 barrels of oil per day. Neither side fully abided by the agreement, however. 

The issue came to a head once again in 2020, over plans for the 2021 budget and the amount of oil Erbil owes Baghdad. The two sides have finalized a deal for the 2021 budget, but the Iraqi parliament has yet to pass the bill.