Kurdistan Reaches Initial Agreement With Baghdad To Restart Oil Exports

Oil from the Kurdistan Regional Government in northern Iraq may start flowing as soon as this week after KRG and federal government officials reached a preliminary agreement to restart exports, which have been cut off since March 25th. 

"Following several meetings between the KRG and federal government, an initial agreement has been reached to resume oil exports jointly through Ceyhan [in Turkey] this week," Lawk Ghafuri, head of foreign media affairs for the KRG, wrote in a Twitter post.

Ghafuri said the agreement would remain in effect until the Iraqi Parliament approves the new oil and gas law governing oil exports and revenue from the Kurdistan Region of Iraq. However, Turkey, which shut off the export pipeline immediately following the court ruling, would also have to approve the resumption deal.

On March 25th, the International Chamber of Commerce ruled in favor of Iraq against Turkey in a dispute over crude flows from Kurdistan, leading to Turkey’s shutdown of the pipeline that runs from the Kurdish Fish-Khabur border to the Turkish port of Ceyhan. Iraq had argued that Turkey shouldn’t allow Kurdish oil exports via the Iraq-Turkey pipeline and Ceyhan without approval from the federal government of Iraq between 2014 and 2018. 

While Baghdad and Erbil have been battling for years over the KRG’s unilateral crude oil exports, which bypass the Iraqi federal government’s oil marketer (SOMO), the situation intensified significantly a year ago, when the Iraqi Supreme Court ruling that a 2007 oil and gas law regulating the KRG’s industry was unconstitutional. Since the election of a new Iraqi government in the fall, and until last week, there had been indications that Baghdad was easing up on its legal battle with the KRG. 

Tensions heightened in February last year after the Iraqi Supreme Court made a landmark decision by ruling that a 2007 oil and gas law regulating the KRG’s oil industry was unconstitutional.

Mohammed Shia al-Sudani, who became Iraq's prime minister in October last year, has been working to quell tensions since taking office.

While this week now looks more promising for a resumption of exports, the shutdown of the Ceyhan pipeline last week prompted some oil companies to start shutting down production due to a lack of storage capacity. Norway-based DNO ASA on Wednesday said it had started an orderly shutdown of oilfields while exports remain suspended.  

The international ruling takes some 450,000 barrels per day (0.5% of the global oil supply) off the market. Last week, those barrels drove a crude oil price rally. 

An initial agreement does not mean there is any certainty that KRG exports will resume this week. There have been some indications that Turkey is hoping to reverse this leverage to pursue its own claims in the international court, which would hold up Ankara’s approval of resumption.  

By Charles Kennedy for Oilprice.com

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