ECONOMY
The Kurdistan Region's independent oil pipeline near the Turkish border on June 1, 2013. Photo: Fazel Hawramy
ERBIL, Kurdistan Region - Baghdad and Erbil are expected to sign a deal that will allow both parties to jointly manage oil exports from the Kurdistan Region and will see a resumption in exports as early as Tuesday, a source briefed about the agreement told Rudaw English.
As negotiations continue between the Kurdistan Regional Government (KRG) and the federal government in Iraq aimed at finalizing the deal, the source said on Saturday evening that the agreement is expected to be officially announced early next week.
Rudaw understands that the agreement consists of joint oil exports by the KRG’s Ministry of Natural Resources and Iraq’s State Organization for Marketing of Oil (SOMO). The revenue from the exports will be stored in an account managed by the KRG under the observation of the federal government in Iraq, the source added.
Oil firms in the Kurdistan Region halted production or reduced output after a Paris-based arbitration court last week ruled that Turkey had violated an agreement with Iraq by allowing independent oil exports from the Region through its pipeline in 2014. Oil exports from the Kurdistan Region have been halted for a week as a result.
In the wake of the ruling, KRG delegations have traveled to Baghdad in an attempt to reach an agreement.
Another source familiar with the negotiations told Rudaw on Friday that the KRG and Iraqi government had reached a preliminary agreement, but that other meetings were still needed.
The anticipated deal will restore stability to the oil market as well as for international oil companies (IOCs) operating in the Region. The halt in oil exports has jeopardized the production of around 450,000 barrels of oil per day as IOCs are storing produce. The suspension of oil exports to the port of Ceyhan also contributed to a 5.7 percent rise in global oil prices.
The KRG is heavily reliant on oil revenues and an extended inability to sell its crude will severely impact its economy. The government has struggled for years to pay over a million civil servants on time and in full.
The court ruling and Baghdad-Erbil relations
Tension between the KRG and federal Iraq flared following a court ruling early last year which declared the Kurdistan Region’s energy sector unconstitutional.
“If Baghdad and Erbil now quickly agree a joint marketing scheme, perhaps just one to last until a federal hydrocarbons law is passed, then there is no damage to Baghdad-Kurdistan relations and the crisis has actually just moved us to a solution even faster,” Michael Knights, analyst and fellow at The Washington Institute, told Rudaw English on Wednesday.
The peak of tense relations between the KRG and Iraq coincided with a time of political uncertainty and instability, but Iraqi Prime Minister Mohammed Shia’ al-Sudani has shown signs of working to ease them since he took office in October.
Last month, a budget agreement was reached between Erbil and Baghdad, with the country finally passing a budget after nearly a year without one in place.
“The Sudani government was moving ahead with a joint marketing deal with Kurdistan and this will only accelerate the negotiations, because now half a million barrels of global supply is on the line,” Knights added talks regarding oil between both sides.
Arbitration court ruling
The International Chamber of Commerce (ICC) arbitration court ruled on March 23 that Turkey had breached a 1973 pipeline agreement that obliges the Turkish government to abide by instructions issued by Iraq regarding the transport of crude oil exported from Iraq. Iraq welcomed the ruling, claiming to be triumphant.
However, Turkey’s Ministry of Energy and Natural Resources then issued a statement arguing that the court had in fact rejected four of Iraq’s five claims, without mentioning what these were, adding that Iraq should in fact pay Turkey compensation.
Following the decision, Turkey informed Iraq that Ankara would no longer allow KRG crude to be loaded onto ships at Ceyhan port without permission from Baghdad.
“The case in question is essentially a result of the ongoing dispute on the right to manage oil resources between the Federal Government of Iraq and the Kurdistan Regional Government, a constitutional part of Iraq,” the ministry added, suggesting the disagreement lies between Baghdad and Erbil.
On Friday, the United States urged Baghdad and Ankara to end the week-long halt of the flow of the Kurdistan Region's oil. "We have urged the governments of Turkey and Iraq to resume the flow of oil through the Iraq-Turkey pipeline," a US State Department official told Rudaw.
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