Will Gaza conflict spillover hamper restarting Kurdistan's oil exports?
The Kurdistan Regional Government (KRG), the Iraqi government, and international oil companies (IOCs) are cautiously optimistic about the resumption of oil exports from the Kurdistan Region, 10 months after they were halted. However, the escalating Middle East conflict has significantly complicated the chances of an agreement as the Kurdistan Region has turned into a battleground for clashes between regional forces. This erodes trust and fosters uncertainty among foreign entities, particularly oil producers.
Frequent assaults on Erbil's airport, attacks on oil and gas fields, and targeting the residents of investors have impeded the three parties involved in the Kurdistan Region's oil exports from finding common ground, despite ongoing negotiations.
Baghdad's reluctance to allocate the Kurdistan Region its fair share of federal funds, as outlined in the Iraqi budget law, has made KRG officials hesitant to relinquish control of their oil and gas sector to Baghdad. Recently, the KRG published on its official website the opinion of Judge Stephen M. Schwebel, an esteemed international jurist who supports the Kurdistan Region's right to produce and manage its oil sector. Judge Schwebel contends that the Federal Supreme Court's decision in February 2022, declaring the KRG's oil and gas law illegal, lacks a legal foundation.
The KRG's position, rejecting the court's legitimacy, remains unchanged, impacting ongoing negotiations with the federal government regarding the federal oil and gas law. The KRG cannot agree to a federal oil and gas law that doesn't recognize its rights, making it a challenge to reach a tripartite agreement with the Iraqi government and oil-producing companies on resuming oil exports.
Baghdad officials acknowledge that approving the KRG's oil contracts and providing IOCs with appropriate financial entitlements to resume exports will directly influence negotiations on drafting, revising, and approving the federal oil and gas law.
Meanwhile, missile and drone attacks on Kurdistan Region territory will likely harden the stance of oil producers in the negotiations. It is understandable that those companies are no longer willing to prioritize long-term interests over short-term ones due to the immense uncertainty surrounding the economic outlook of the region. Oil producers emphasize that current domestic oil sales only cover operational costs, with a significant portion of their workforce, especially local employees, laid off after reducing their productions. IOCs express frustration at investing millions, if not billions, without adequate compensation.
Uncertainty surrounding the end of the Middle East war and its unpredictable consequences on Iraq and the Kurdistan Region, coupled with the potential withdrawal or mission change of United States troops, complicates the stances of the three parties involved in resuming Kurdistan Region oil exports. The Kurdistan Region asserts its rights to manage its oil fields based on the Iraqi constitution. Oil companies are reluctant to resume oil production for export at a moderate or low cost, and the federal government is unwilling to acknowledge KRG's oil contracts with IOCs. The Iraq government also hesitates to assume the old debts of oil companies operating in the Kurdistan Region. These factors are likely to impede the resumption of oil exports unless a dramatic shift happens in the federal government's policy toward the Kurdistan Region.
Omar Ahmad is editor-in-chief at Rudaw Media Network's economic desk.
The views expressed in this article are those of the author and do not necessarily reflect the position of Rudaw.
Frequent assaults on Erbil's airport, attacks on oil and gas fields, and targeting the residents of investors have impeded the three parties involved in the Kurdistan Region's oil exports from finding common ground, despite ongoing negotiations.
Baghdad's reluctance to allocate the Kurdistan Region its fair share of federal funds, as outlined in the Iraqi budget law, has made KRG officials hesitant to relinquish control of their oil and gas sector to Baghdad. Recently, the KRG published on its official website the opinion of Judge Stephen M. Schwebel, an esteemed international jurist who supports the Kurdistan Region's right to produce and manage its oil sector. Judge Schwebel contends that the Federal Supreme Court's decision in February 2022, declaring the KRG's oil and gas law illegal, lacks a legal foundation.
The KRG's position, rejecting the court's legitimacy, remains unchanged, impacting ongoing negotiations with the federal government regarding the federal oil and gas law. The KRG cannot agree to a federal oil and gas law that doesn't recognize its rights, making it a challenge to reach a tripartite agreement with the Iraqi government and oil-producing companies on resuming oil exports.
Baghdad officials acknowledge that approving the KRG's oil contracts and providing IOCs with appropriate financial entitlements to resume exports will directly influence negotiations on drafting, revising, and approving the federal oil and gas law.
Meanwhile, missile and drone attacks on Kurdistan Region territory will likely harden the stance of oil producers in the negotiations. It is understandable that those companies are no longer willing to prioritize long-term interests over short-term ones due to the immense uncertainty surrounding the economic outlook of the region. Oil producers emphasize that current domestic oil sales only cover operational costs, with a significant portion of their workforce, especially local employees, laid off after reducing their productions. IOCs express frustration at investing millions, if not billions, without adequate compensation.
Uncertainty surrounding the end of the Middle East war and its unpredictable consequences on Iraq and the Kurdistan Region, coupled with the potential withdrawal or mission change of United States troops, complicates the stances of the three parties involved in resuming Kurdistan Region oil exports. The Kurdistan Region asserts its rights to manage its oil fields based on the Iraqi constitution. Oil companies are reluctant to resume oil production for export at a moderate or low cost, and the federal government is unwilling to acknowledge KRG's oil contracts with IOCs. The Iraq government also hesitates to assume the old debts of oil companies operating in the Kurdistan Region. These factors are likely to impede the resumption of oil exports unless a dramatic shift happens in the federal government's policy toward the Kurdistan Region.
Omar Ahmad is editor-in-chief at Rudaw Media Network's economic desk.
The views expressed in this article are those of the author and do not necessarily reflect the position of Rudaw.