Oil exports halt a ‘huge blow’ to KRG economy: Expert
ERBIL, Kurdistan Region - The halt of oil exports by the Kurdistan Regional Government (KRG) and the possibility for production to cease present a serious risk to the economy of the Region as the exports are the crucial lifeline of its economy, a London-based oil and energy expert said Monday.
The International Chamber of Commerce in Paris decided on Thursday in favor of the Iraqi government against Turkey in regards to KRG’s oil exports through Turkey’s Ceyhan port, placing Iraq’s State Oil Marketing Organization (SOMO) as the only party in charge of the management of export operations through the port, Baghdad announced.
“If the production stops, it is going to be a huge blow to KRG economy and therefore these has to be a solution between Baghdad and Erbil on how these exports can continue,” Mehmet Ogutcu, an oil expert and chairman of London Energy Club, told Rudaw’s Shahyan Tahseen.
The production of around 450,000 barrels of oil per day in the Kurdistan Region has been jeopardized as a halt in exports has forced international oil companies (IOCs) operating in the region to store produce rather than allow it to flow to the pipeline – an inadequate measure as storage capacity is limited.
“It is not going to affect the world oil market significantly, but it will have a huge impact on the KRG economy because this is the only revenue that it relies on unless it gets compensation or a share from Baghdad … this has to be solved very, very quickly,” Ogutcu stressed. “There is a lot of work to be done between Erbil and Baghdad.”
An assistant to Kurdistan Region Prime Minister Masrour Barzani on Sunday said that the halt of independent oil exports by the KRG is temporary and that it is expected to resume once an agreement is struck with Baghdad.
“It is true that oil exports have been halted, but this is a temporary situation because we have good relations with the Iraqi government,” Rebaz Hamlan said.
The arbitration court ruled that Ankara had breached a 1973 pipeline agreement between Iraq and Turkey that obliges the Turkish government to abide by instructions issued by Iraq regarding the transport of crude oil exported from Iraq. In 2014, the KRG began using the pipeline to send its crude to Turkey’s Ceyhan port, to the ire of Baghdad.
According to the arbitration court ruling, Turkey must pay a penalty of $1.4 billion to Iraq.
“The big issue is how KRG oil will continue to flow to Ceyhan [in Turkey] and the international market and how the payment will be made back to Erbil rather than going to Baghdad and then coming from Baghdad to Erbil,” Ogutcu continued, saying a solution to the issue has to be found urgently.
The KRG is heavily reliant on oil revenues and an inability to sell its crude will severely impact its economy. The government has found hardships for years to pay its over a million civil servants on time and in full.
“The failure to find a solution is a disaster for the KRG,” Ogutcu emphasized.
The International Chamber of Commerce in Paris decided on Thursday in favor of the Iraqi government against Turkey in regards to KRG’s oil exports through Turkey’s Ceyhan port, placing Iraq’s State Oil Marketing Organization (SOMO) as the only party in charge of the management of export operations through the port, Baghdad announced.
“If the production stops, it is going to be a huge blow to KRG economy and therefore these has to be a solution between Baghdad and Erbil on how these exports can continue,” Mehmet Ogutcu, an oil expert and chairman of London Energy Club, told Rudaw’s Shahyan Tahseen.
The production of around 450,000 barrels of oil per day in the Kurdistan Region has been jeopardized as a halt in exports has forced international oil companies (IOCs) operating in the region to store produce rather than allow it to flow to the pipeline – an inadequate measure as storage capacity is limited.
NEW: 🇮🇶🇹🇷 Foreign oil firms operating in the KRG have begun diverting their crude output into storage tanks after pipeline exports of Kurdish oil to Ceyhan were halted Friday following the end of a 9 year arbitration case between Ankara and Baghdad. #ootthttps://t.co/HYR0alyip6
— Nader Itayim | نادر ایتیّم (@ncitayim) March 27, 2023
“It is not going to affect the world oil market significantly, but it will have a huge impact on the KRG economy because this is the only revenue that it relies on unless it gets compensation or a share from Baghdad … this has to be solved very, very quickly,” Ogutcu stressed. “There is a lot of work to be done between Erbil and Baghdad.”
An assistant to Kurdistan Region Prime Minister Masrour Barzani on Sunday said that the halt of independent oil exports by the KRG is temporary and that it is expected to resume once an agreement is struck with Baghdad.
“It is true that oil exports have been halted, but this is a temporary situation because we have good relations with the Iraqi government,” Rebaz Hamlan said.
The arbitration court ruled that Ankara had breached a 1973 pipeline agreement between Iraq and Turkey that obliges the Turkish government to abide by instructions issued by Iraq regarding the transport of crude oil exported from Iraq. In 2014, the KRG began using the pipeline to send its crude to Turkey’s Ceyhan port, to the ire of Baghdad.
According to the arbitration court ruling, Turkey must pay a penalty of $1.4 billion to Iraq.
“The big issue is how KRG oil will continue to flow to Ceyhan [in Turkey] and the international market and how the payment will be made back to Erbil rather than going to Baghdad and then coming from Baghdad to Erbil,” Ogutcu continued, saying a solution to the issue has to be found urgently.
The KRG is heavily reliant on oil revenues and an inability to sell its crude will severely impact its economy. The government has found hardships for years to pay its over a million civil servants on time and in full.
“The failure to find a solution is a disaster for the KRG,” Ogutcu emphasized.