The Iraqi Parliament’s approval of a plan to boost payments to international oil companies operating in the Kurdish Regional Government (KRG) is seen as a pivotal move to restart oil exports to Türkiye.
On February 2, the Iraqi Parliament approved amendments to the budget law aimed at subsidizing the production costs of international oil companies operating in the KRG. As part of this, the cost of extracting and transporting each barrel of oil from the region was set at $16.
The KRG had previously rejected an offer of $7.9 per barrel, deeming it too low.
Following the agreement, attention shifted to the Iraq-Türkiye oil pipeline, the launch of which had been delayed due to disputes over cost.
Expectations of resuming oil flow through the pipeline grew stronger after Iraqi Oil Minister Hayan Abdel-Ghani’s announcement on February 4 that KRG oil would be delivered to the Iraq’s State Organization for Marketing of Oil (SOMO) and that necessary procedures were underway with Türkiye to export oil from the Ceyhan Port.
– Halt in exports led to a $23 billion loss for KRG
Oil flow from Iraq to Ceyhan Port ceased on March 25, 2023, following the arbitration ruling by the Paris-based International Chamber of Commerce (ICC) concerning oil exports between Türkiye and Iraq.
Additionally, the earthquakes centered in Kahramanmaras on February 6, 2023 further disrupted the use of the pipeline.
On April 2024, Turkish Minister of Energy and Natural Resources, Alparslan Bayraktar, stated that Türkiye was not at fault for the issues surrounding the Iraq-Türkiye pipeline.
He noted that the pipeline had been ready for operation since October 4, 2023, but ongoing disagreements between the northern Iraqi administration and the central government had hindered its activation.
It has been reported that the halt in oil exports from Iraq to Türkiye resulted in a loss of $23 billion for the region.
– ‘Both parties have a strong incentive to make this work’
Baghdad’s revision to payments is a crucial step toward the resumption of Iraqi oil shipments through Türkiye, Alberic Mongrenier, executive director of the European Initiative for Energy Security, told Anadolu.
‘The central government and the KRG still need to agree on the hiring of an independent consultant to assess the production and transport costs of KRG’s oil, which will cause some friction,’ Mongrenier said.
Given the economic importance of the issue and the fact that exports have stalled for two years, Mongrenier acknowledged that ‘both parties have a strong incentive to make this work.’
Noting that the KRG generates the majority of its revenues from oil, Mongrenier emphasized that resuming exports will greatly benefit Iraq by easing the economic pressure in the region.
While acknowledging the potential for future friction over the cost rate, Mongrenier stated that the agreement would be viable, as the determined transportation and production cost of $16 is nearly double the previous rate.
However, Mongrenier also added that the compromise could have negative repercussions for the Organization of the Petroleum Exporting Countries (OPEC), noting that it could complicate Iraq’s ability to adhere to production cuts.
– Oil flow could contrbute to Ankara-Baghdad dialogue
Francesco Sassi, a Bologna-based research fellow in energy geopolitics and markets at Ricerche Industriali ed Energetiche (RIE), stated that the dialogue between Ankara and Baghdad will progress positively if oil flows to Türkiye are resumed.
Sassi stated that the agreement has a critical role in optimizing Iraq’s oil exports as the country prepares for elections this year.
Stabilizing Iraq’s economy through more efficient and transparent management of its oil reserves is a crucial step, especially during the period of high volatility in oil prices, driven by growing protectionist policies and tariff wars between the US and global powers, Sassi noted.
Also, resuming oil flows to Türkiye ‘could contribute to facilitate the dialogue between Ankara and Baghdad, strained as a consequence of the regime change in Syria,’ Sassi concluded.
