Halt in Kurdish oil exports impacts global prices: IOC VP

ERBIL, Kurdistan Region - The vice president of an American oil company operating in the Kurdistan Region told Rudaw last week that resuming the Region’s oil exports is a priority for the US government as the ongoing halt is a “contributing factor” to hiking global prices.

Turkey stopped the flow of Kurdish oil through the Iraq-Turkey pipeline after a Paris-based arbitration court on March 23 ruled in favor of Baghdad against Ankara. The court ordered Ankara to pay a penalty of $1.5 billion in damages to Baghdad for allowing the Kurdish authorities to independently export its oil between 2014 and 2018.

Matthew Zais, vice president of HKN Energy, told Rudaw’s Roj Eli Zalla that, based on their conversations with US authorities, Washington views the resumption of the Kurdistan Region’s oil exports as a priority due to its impact on Iraq and the Region’s economic and political stability.

“The United States is doing a lot behind the scenes to work with all parties, to include the Turks and the Iraqis, on ensuring the exports resume, and I think in particular for Iraq, I think the US government is heavily engaged because of the economic and political instability that has risen from the stoppage of oil exports and the budget, and I think a resolution on this economic instability and the questions remain and I think it is a priority for the US government from our conversations,” said Zais.

Another reason for US interest in resuming Kurdish oil exports is due to the fact that Washington is “very concerned” about increasing oil prices in the country, which heavily impacts US and global economy, making the Kurdistan Region a “key player” on the global stage, according to the HKN vice president.

“That is where Kurdistan becomes another key player on the global stage, because the lack of oil exports is a contributing factor to higher global oil prices,” he noted.

Erbil and Baghdad signed an agreement to resume the Region’s exports in April, but there is still no oil flowing through the pipeline to Turkey despite Ankara saying the pipelines, which were believed to be damaged by February’s strong quakes, are ready for oil flow.

“More could be done,” said Zais in regards to US pressure on Ankara, Baghdad, and Erbil, to resume the exports, suggesting that Washington can negotiate an in-person mediation between all sides.

About 400,000 barrels of oil were being exported daily by Erbil through Ankara before the halt, in addition to some 75,000 barrels from the federally-controlled Kirkuk’s fields.

The Association of the Petroleum Industry of Kurdistan (APIKUR), of which HKN is a member, has in recent weeks called on both the Iraqi federal government and the Kurdistan Regional Government (KRG) to honor their contractual rights and ensure the companies receive fair reimbursements.

Zais stressed that even if Ankara, Baghdad, and Erbil were to reach an agreement on resuming the exports, the governments still have to ensure the financial rights of the IOCs are accounted for and the contractual agreements are honored, otherwise there would be no oil flowing through the pipeline.

“The problem you’re going to have is if the pipeline opens and there is no commercial solution on how to repay the IOCs that are producing that oil, then you’re going to have an empty pipeline and we’re not going to put oil into that pipeline,” said Zais.

The association consists of international oil and gas companies that are directly or indirectly involved in the production of the Kurdish oil. Its members include DNO, Genel Energy, Gulf Keystone Petroleum, HKN Energy, and ShaMaran Petroleum. 

The IOCs and the KRG are bound by Production Sharing Contracts (PSCs) which are governed by British law, hence any disputes would have to be taken to the London Court of International Arbitration. 

Under the Kurdistan Region’s PSC model, the IOCs cover the entire cost of production while the KRG receives the lion’s share of the profits from successful projects.

The US company HKN Energy operates in Duhok province and has had a $4 billion economic impact in the Region. It has a 75 percent local workforce that it aims to increase to 90 percent in the next five years.