IRAQIS SEEK LAST-DITCH TALKS ON OIL RIGHTS AMID PRODUCTION SHUTDOWN
▶ Row between Baghdad and Erbil over exports dates back to disputes over parts of country’s 2005 constitution
Officials in Baghdad and members of the semi-autonomous Kurdistan Regional Government in Erbil have been trying to strike an agreement on the future of the northern region’s oil exports, after talks ended inconclusively this week.
The dialogue follows an international arbitration ruling last week that declared Kurdish oil exports through Turkey were illegal.
That finding led to the shutdown of the main export pipeline through the Turkish port of Ceyhan, and about 0.5 per cent of global crude production has been halted.
The negotiations could end an almost 15-year-long dispute between Baghdad and Erbil over how oil exports and revenue are managed in the semi-autonomous region.
It could also settle a row over the country’s constitution, which was supposed to outline rights to oil production and exportation. A new law called for by the constitution, detailing national-level energy rights, has languished for years but could yet be revived.
“The KRG at the moment is working hard with Baghdad to pass the oil and gas law,” a Kurdish government official told The National.
“Article 112 of the constitution says we must jointly manage the oil and gas sector and this is what we have been trying to do since 2019 with the current cabinet,” the official said, outlining the Kurdish interpretation of Iraq’s 2005 constitution.
For now, both sides are trying to break the impasse. In the absence of a deal, up to 450,000 barrels per day of oil from fields operated by Kurdish and international companies could be shut in.
However, a deal on the fate of the oil could yet be struck, which could mean the debt-ridden KRG receives about $1 billion a month from the federal government, analysts have told The National.
Regular payments from Baghdad to the KRG were agreed on after the 2003 US-led invasion at 17 per cent of Iraq’s oil revenue. This figure was based on an estimate of the region’s population. Under a new deal, this could resume – having been in dispute since January 2014 when the Kurdistan region began exporting oil independently using the Iraq-Turkey pipeline, without Baghdad’s consent.
Former prime minister Nouri Al Maliki objected to the use of the pipeline by the Kurdish government in Erbil. Baghdad then stopped the monthly payments, plunging the region into a financial crisis in the midst of the conflict with ISIS.
After the war against ISIS ended in 2017, payments were partially restored but at a lower level – 12.67 per cent – based on a 2003 UN estimate of the Kurdistan region’s population.
But even then, this only happened irregularly.
Short-lived deals have been struck in which the Kurds allowed Iraq’s State Organisation for Marketing Oil to market the oil in exchange for payments to Erbil from Baghdad.
The Kurdistan region has struggled to meet public sector salaries and payments for international oil companies, amounting to several billion dollars’ worth of debt. Iraq’s Ministry of Oil said authorities would “discuss the mechanism of exporting Iraqi oil through Ceyhan with the concerned entities in the Kurdistan region and Turkish authorities”.
Kirk Sowell, who runs the Utica Risk Services consultancy focused on Iraqi politics, said a new deal could involve resumption of significant payments to the KRG – provided oil prices remain elevated and even in the absence of a new oil law.
Iraq’s Prime Minister Mohammed Shia Al Sudani has tried to build cordial ties with the Kurdish Democratic Party, which dominates the region’s oil industry from its stronghold in Erbil, and the Patriotic Union of Kurdistan, based in the city of Sulaymaniyah.
This outreach is despite opposition from allies within Mr Al Sudani’s largely Iran-aligned coalition, the Co-ordination Framework – many of whom are strongly against the KDP.
“The Sudani-KRG deal is incorporated into the budget,” Mr Sowell said. “It creates what is called a unified account for all KRG revenue and requires the KRG to export 400,000 bpd through Somo, minimum, and also submit customs duties.
“When Mr Al Sudani and others say that this resolves all problems between Baghdad and Erbil, that is only true if there is compliance.
“The whole pipeline issue will go away if the KRG complies, because they’ll be exporting through Somo and not independently.
“The problem is that the KRG has massive debts, including payments to oil companies it has to make for its independent oil industry to function.”
Omar Al Nidawi, an analyst with the NGO Enabling Peace in Iraq Centre, said prospects were encouraging but warned hardliners linked to Mr Al Sudani could yet derail a compromise.
“That risk arises from the potential of the kind of Baghdad we have right now – a Co-ordination Framework-dominated one – to overreach,” he said.
“If politicians in Baghdad choose to overreach and see this as an opportunity to humiliate the Barzanis, then that sort of approach could produce legislation that can be destabilising,” he said, referring to the Barzani dynasty that runs the KDP.