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One of the world’s top commodity traders, Trafigura, is pulling out of a prepayment-for-oil-exports deal with the semi-autonomous region of Kurdistan in Iraq, a source with knowledge of the matter told Bloomberg on Friday.
The ending of such a deal is another setback for the Kurdistan Regional Government (KRG) in its attempts to continue exporting crude oil independently from the federal government of Iraq.
Trafigura, which had lent money to KRG in exchange for future oil exports from the region, is still owed $273 million under the prepayment contract, according to Bloomberg’s source.
The KRG has refused to renegotiate the terms of the contract while a meeting between Kurdistan’s Prime Minister Masrour Barzani and Trafigura at Davos last week was canceled by Barzani at the last minute, the source told Bloomberg.
The investment climate in Kurdistan is currently not conducive to major oil industry investments - despite Kurdistan officials’ claims to the contrary - amid a bitter dispute between the KRG and the federal government of Iraq over who has the right to control the oil resources and revenues in the semi-autonomous region. In February 2022, the Supreme Court of the Federal Government of Iraq ruled that sales of oil and gas by Kurdistan, independent of the central government in Baghdad, are unconstitutional and that the KRG must hand over all oil production to the Federal government.
Oil exports account for over 80% of the KRG budget, and without revenues from oil, the region faces even more hardships on top of the limited budget allocations from the federal government in Iraq.
Kurdistan’s crude oil production and exports have declined in recent years, with output down to around 434,000 barrels per day (bpd) in the first quarter of 2022 from nearly 470,000 bpd in 2019, according to a Deloitte report commissioned by the KRG.
If investments do not return to Kurdistan’s oil sector, crude available for export could halve to 240,000 bpd by 2027, due to the depletion of old wells, according to the documents seen by Reuters last year.
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com