Iraq gov’t proposes compensating oil companies in Kurdistan at $16 per barrel

ERBIL, Kurdistan Region - Iraq’s Council of Ministers on Tuesday approved a proposal to amend the federal budget to authorize compensation to companies operating in the Kurdistan Region for oil production and transportation costs, setting the rate at $16 per barrel. The proposal - yet to be finalized by parliament - aims to resume oil exports from the Region. 

Iraq passed a three-year federal budget in June 2023 that set the rate for one barrel of oil at $6.90 and producers in the Kurdistan Region have requested three times that amount.

“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,” read a statement from the office of Iraqi Prime Minister Mohammed Shia’ al-Sudani.

The council’s proposed bill calls for an internationally-specialized consulting entity - agreed upon by Iraq’s oil ministry and the Kurdistan Regional Government (KRG) Ministry of Natural Resources (MNR) - to “fairly” estimate the costs within 60 days. 

If an agreement cannot be reached within the given timeframe, the statement said that the Council of Ministers will appoint a consulting entity to undertake “submitting estimated production and transportation costs.”

Oil exports from the Kurdistan Region through the Iraq-Turkey pipeline have been suspended since March 2023, following a ruling by a Paris-based arbitration court in favor of Baghdad. The court found Ankara in breach of a 1973 pipeline agreement by allowing Erbil to export oil independently since 2014. 

“Today's decision of the Federal Council of Ministers is an important step to resolve one of the outstanding issues between the Kurdistan Region and Baghdad,” Narmin Maarouf, a member of Iraq’s finance committee, said in a Facebook post.

Maarouf highlighted “many differences between the nature of the oil fields in the Kurdistan Region and Iraq, except for the differences between the oil contracts of both sides.”

In late September, the finance committee of the Iraqi parliament and the KRG reached an initial agreement to review the Kurdish government’s contracts with international oil companies, with the goal of restarting oil exports

The KRG, in establishing its independent oil sector, signed production-sharing contracts with IOCs, which stipulate that the companies cover all production costs. However, setting a standardized cost per barrel has been a point of contention between the KRG and the federal government.

In March, the Iraqi oil ministry said that in accordance with the federal budget, the average cost for producing one barrel of oil is $6.90, while the IOCs operating in the Kurdistan Region were asking for three times that amount, as well as the repayment of billions of dollars of debts that are “unknown to the federal government.”

Updated on November 6 at 9:46 pm; clarified “production and transportation costs”