A new chapter unfolds in Kurdistan Region’s oil, gas industry

Recent reports suggest an imminent resumption of Kurdistan Regional Government (KRG) oil exports to the port of Ceyhan in Turkey within the next two weeks, a development that has been met with approval from Iraqi federal government officials.

Despite a halt in Kurdistan Region oil exports for over six months and persistent challenges, including uncertainties surrounding the payment of international oil companies (IOCs), there remains a chance of resuming oil exports through the pipeline if the Iraqi government adopts a more cooperative stance, thus easing tensions with the KRG. Such a move would not only release almost half a million barrels of oil into the international market, a matter of importance to the European Union and US, but also advance the project of exporting Kurdistan Region gas to the global market.

Following a six-month hiatus in oil exports, Brent crude prices have surged beyond $90 per barrel, with projections indicating a potential reach of $100 by year-end. Despite the substantial $6 billion loss, the Iraqi government has yet to show a definitive intent to restart oil exports from the Kurdistan Region. 

Iraqi Oil Minister Hayyan Abdul Ghani cited the export suspension as a contributing factor in Iraq's compliance with the OPEC Plus agreement. While certain factions in Iraq have resisted oil production in the Kurdistan Region, sustained pressure from the US and a European country has compelled Iraq to reopen the pipeline. Notably, US officials have consistently urged Prime Minister Mohammed Shia' al-Sudani to reopen the Kurdistan oil export pipeline. His pledge in New York to open the KRG oil pipeline is being closely monitored by interested parties.

In the United States, a major economic challenge is the persistently high inflation rate, partly due to elevated oil prices. Resuming oil exports from the Kurdistan Region could potentially lower the price of oil, a crucial commodity given the global demand-supply gap. Therefore, the resumption of Kurdish oil exports holds significance for both Democratic and Republican parties and could alleviate economic strains caused by the fuel crisis in Europe following the Ukraine conflict.

Kurdistan Region's medium-grade oil, ideal for European refineries, has significantly influenced energy supply in several European countries. With the ongoing energy crisis, European nations welcome the resumption of oil exports from the Kurdistan Region. 

The complex global energy situation has elevated the Kurdistan Region's status in the world's energy security landscape. However, numerous hurdles hinder oil exports from the Region. Legal disputes between Iraq and Turkey in the US court system, with claims totaling billions, could potentially cause delays in exports. Additionally, Iraq's reluctance to adequately compensate oil companies in the Kurdistan Region hampers production.

The Iraqi government has announced an allocation of only $6 per barrel for oil producers in the Region, a figure that has been met with significant resistance from IOCs. In an interview with Rudaw TV, the spokesperson for the Association of the Petroleum Industry of Kurdistan (Apikur), challenged a $6 compensation, revealing that foreign companies in the south receive much more than that amount, around $35. The oil companies in the Kurdistan Region demand a similar compensation from the Iraqi government.

Addressing these obstacles could lead to an increased pipeline capacity, potentially reaching one million barrels per day. This would attract substantial investment, driving further growth in the oil industry in the Kurdistan Region.

Resolving the disputes between the KRG and Iraq regarding oil production and exports could pave the way for increased collaboration in the realm of natural gas.

In the coming years, with ongoing natural gas development initiatives, the Kurdistan Region anticipates a substantial surge in natural gas production. This surplus could not only meet local demands but also serve as a valuable resource for generating electricity in various parts of Iraq and potentially for export to international markets. 

The groundwork for exporting natural gas through Turkish territory is already in place, requiring only the installation of a pipeline to reach the Turkish border. Just last month, the Iraqi government unveiled an ambitious $17 billion project aimed at constructing a railway and gas pipeline to connect Europe and multiple other countries via Turkey. However, the success of this endeavor hinges on integrating the natural gas resources of the Kurdistan Region into the project.

The Kurdistan Region's substantial natural gas reserves could significantly bolster its political and economic influence on the global stage. However, internal conflicts between ruling parties must be resolved to leverage these reserves effectively.

Omer Moradi is the desk manager of Rudaw Media Network's Economy Desk.