Iraq’s Kirkuk oil deal with Iran collapses under US sanctions

SULAIMANI, Kurdistan Region – The first shipment of Kirkuk oil arrived in Iran in June 2018 marking the start of a broader agreement between Baghdad and Tehran ensuring Kirkuk oil was no longer shipped abroad via Turkey’s Ceyhan Port. But new US sanctions on Iran have changed everything. 

One Kirkuk official, who spoke to Rudaw on condition of anonymity, said a decision had been made to halt the export of Kirkuk oil via Iran, but revealed “tankers continue to export oil and might continue to do so until the day the sanctions are imposed.”

Before October 16, 2017, 300,000 barrels of Kirkuk oil were exported to Ceyhan Port daily. This came to an end after the KRG lost control of these oilfields when the Iraqi army and Hashd al-Shaabi forces captured the disputed province from the Peshmerga. Once in control, the Iraqi and Iranian oil ministers signed their own deal.

Under the first phase of the agreement, 30,000 barrels of oil were to be exported to Iran by tanker. Under the second phase, exports will be made via pipelines. However, on October 26 this year, Reuters said Washington had ordered a halt to Kirkuk oil exports via Iran.

Dr Bewar Khinsi, an energy expert, said the Iraqi government has suffered $5 billion in financial losses since halting exports via Turkey’s Ceyhan Port.

“US sanctions have prompted Baghdad to ask the Kurdistan Region to allow it to export Kirkuk oil via Kurdistan’s pipelines again,” he said.

The KRG will either ask for money in return for allowing Baghdad to use its pipelines to export Kirkuk oil or will make some other demand, he said. “Baghdad should give the KRG $300,000 every day if it chooses to pay the KRG $1 for every barrel.”

In July 2018, former Iraqi oil minister Jabar Lihebi said the government was holding talks with Turkey and the Kurdistan Region about exporting Kirkuk oil via Ceyhan Port. He also said 220,000 barrels of oil were being produced daily in Kirkuk.

Ahmad Askari, a member of Kirkuk provincial council, said the US decision is not news for the people of Kirkuk “because no matter who buys Kirkuk oil or from where it is exported, it is Baghdad that receives the money. Kirkuk doesn’t benefit from it.” 

The new negotiations between Erbil and Baghdad over exporting Kirkuk oil via Kurdistan pipelines provide an opportunity for the KRG to ask Baghdad to give Kirkuk its petrodollar. But will the KRG do this?

“Tankers export Kirkuk oil to Iran daily. And this has damaged city roads badly and caused transportation problems for people,” Askari said.

Mohammed Kamal, a Kurdistan Democratic Party (KDP) member of Kirkuk provincial council, said they don’t know what is happening to Kirkuk oil and how it is being used. 

“Regardless of the details of the agreement between Erbil and Baghdad, it is better for the oil to be exported by pipelines because no one knows how the oil is sold and how much money is earned if it is exported by tankers,” he said.

“Exporting oil by pipeline is legal. If the oil is exported by pipes, Kirkuk provincial council and the people can ask Baghdad for petrodollar,” he added.