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Tugce Varol

Tugce Varol

PhD. Tugce Varol; academic, author and strategic analyst. Tugce Varol has been working as a scientific adviser for 21st Century Turkey Institute since 2011.  She…

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Iran And Turkey Court The KRG For Oil

Oil pipeline

Two years ago, while Kurdish oil was flowing to Turkey’s port of Ceyhan, Iran and the Kurdistan Regional Government (KRG) signed a natural gas-for-oil agreement that included the construction of two pipelines between the territories. According to the agreement, the regional government would receive between 3 million and 4 million liters of refined oil fuel and natural gas in return for crude oil. The first pipeline would carry oil from Kurdish territory to Iran and Iran would refine and then return the oil. Moreover, Iran would send natural gas to KRG cities such as Sulaymaniyah and Erbil. At the time of the agreement, ISIS was attacking Iraqi territory and threatening Iraqi oil resources; Iran was under international sanctions, and Bagdad was opposing the export of stored Kurdish oil from Turkey's port of Ceyhan, claiming that the KRG was violating Iraq's constitution.

Shortly after the ISIS invasion of Mosul, Iraq’s second biggest city, it was announced that a tanker had delivered a cargo of disputed Kurdish crude oil from Ceyhan to Israel, despite threats by Bagdad to take legal actions against buyers and Turkey. The oil money paid to Turkey's Halkbank remained blocked until Erbil and Bagdad had reached an agreement over the export of KRG oil. Iran considered the 2014 ISIS attack, which brought the jihadists close to the KRG’s capital, a great opportunity. Iran used the ISIS threat to supply weapons and ammunition to Iraqi Kurdish forces, which mean that the KRG continued to meet with the Iranian leadership and negotiate to buy Iranian gas and have Kurdish oil refined across the border. Related: The Crude Crash Has Created Oil’s Technological Superpowers

Since 2012 KRG has sent its oil to Turkey's port by trucks and extended the Kirkuk-Ceyhan oil pipeline. However, due to internal conflicts in Turkey between Turkey's military forces and the PKK terrorist group, the Kirkuk-Ceyhan pipeline was halted several times. Moreover, the KRG’s leader Barzani faced a challenge from acting PKK leader, living in the KRG area, Cemil Bayik. Bayik remains hostile to Ankara-Erbil energy relations and favors an alignment with Tehran. When the KRG was having financial problems due to the halting of the Kirkuk-Ceyhan pipeline and Bagdad’s refusal to send KRG’s share of oil income, the Iranian diplomat in Kurdistan offered the Kurdish government access to the Persian Gulf for export of its crude oil. In addition to that, Iran has agreed to grant cash loans to the KRG in return for stakes in the Kurdish oil.

In February the KRG accepted a deal from Bagdad that would have halted the Kurds unilateral oil exports in exchange for Bagdad paying its public employee salaries. However, the KRG’s leader, Barzani, called for foreign powers to provide financial aid for the Peshmerga, the Kurdish military forces, in their fight against ISIS. First, Turkey sent $200 million to help Kurds who were hit hard by the oil pipeline export stoppage. Then, the United States decided to provide $415 million in aid to Iraqi Kurdish Forces in April 2016. Both Turkey and the United States aimed to cut the close relationship with the KRG and Iran by strengthening the KRG’s economy. Nevertheless, a Kurdish delegation has visited Tehran seeking a deal to export its oil and gas to Iran on April 5th, 2016. The KRG representative expressed that Iran has a willingness to extend its gas pipeline to export and import gas from the Kurdistan region. If a pipeline between the KRG and Iran is finalized, the new pipeline would bring the KRG one step closer to the financial independence it seeks, but it would cause problems between Turkey, Israel and the KRG.

One pipeline under consideration would originate near the Taq Taq field and cross the Iranian border, north of Lake Dukan, while the second pipeline under consideration would run fromthe Khor Mor field to Khanagin, which is also close to the Iranian border. The Taq Taq field is operated by UK-based Genel Energy, which has Turkish share-holders, while the Khor Mor gas field is operated by Dana Gas. Moreover, six blocks belong to Turkish state company and several blocks to other Turkish private energy companies in the Kurdistan region. If an oil pipeline and a natural gas pipeline were to be finalized between the KRG and Iran, Turkey would lose its control over Kurdish oil production and its natural gas export option. Related: The End Of The Petro-State Era

In May 2016, the KRG and Iran delegations met again and expressed that they are close to signing an agreement to start exporting oil from Kurdistan region to Iran. The difference between the KRG-Iran energy relations and the KRG-Turkey relations is that Iran is seeking federal approval for a possible route from Kurdistan to Iran. An Iranian official in Sulaymaniyah stated that "a pipeline is still at the discussion stage”, as Baghdad had not given the green light to approve the project. Therefore, Iran aims to establish energy relations with the KRG whereas Turkey does not.

On the other side, Iraq will begin importing Iranian natural gas starting in late June 2016. If Iran and the KRG reach an agreement to build oil and natural gas pipelines, the new geopolitical development will be a challenge for Turkey and Israel. Turkey may lose its domination over Kurdish energy sector, and Israel will have to seek new oil resources instead of importing Kurdish oil from the Ceyhan port. From the KRG’s point of view, in case of any conflict with Turkey, whether military or political, a second export route would mean that Kurdistan was no longer dependent on Turkey for its oil exports.

By Tugce Varol for Oilprice.com

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