Iraqi oil ministry rebukes foreign oil producers in Kurdistan for 'interference in national affairs'

The Iraqi oil ministry issued a rebuke on Monday in response to recent assertions made by foreign oil producers in the Kurdistan region, denouncing them as unwarranted interference in Iraqi affairs.

Since 23 March 2023, oil exports from the Kurdistan region through the Iraq-Turkey pipeline have ceased following a ruling in favour of Baghdad by a Paris-based arbitration court against Ankara. The ruling stated that Ankara breached a 1973 agreement by permitting Erbil to commence independent oil exports in 2014. 

The ongoing closure of the pipeline has led to significant losses for both Baghdad and Erbil, as it has effectively halted the daily export of 450,000 barrels of crude oil, representing approximately 0.5% of the global oil supply. These barrels remain in limbo due to legal and financial hurdles.

The Association of the Petroleum Industry of Kurdistan (APIKUR) alleged on Saturday that the Iraqi federal government had not taken necessary action to reopen the pipeline. They asserted that despite a year-long hiatus, there had been negligible progress in resuming exports.

The Iraqi oil ministry, however, blamed international oil companies (IOCs) operating in the Kurdistan region for the pipeline's continued closure. They emphasised that Baghdad did not decide to halt the process and highlighted the federal government's significant detriment due to the export halt.

"One of the main reasons for the current export halt is the refusal of foreign companies operating in the Kurdistan Region of Iraq to officially hand over their production to the regional government for export in accordance with the prevailing Federal Budget Law," the ministry said in a statement in response to  APIKUR. "This includes companies affiliated with the aforementioned association. Export can be resumed shortly if these companies deliver the oil produced from fields in the region in accordance with the law."

The ministry cited foreign companies' refusal to officially hand over their production to the Iraqi government for export, citing the federal budget law's requirement. This law mandates that the Kurdistan Regional Government (KRG) deliver its oil production to Baghdad for export, with reports indicating daily production of 200 to 225 thousand barrels in the Kurdistan region, unbeknownst to the oil ministry.

Under Article 13 of the Iraqi federal budget, the Kurdistan region must provide a minimum of 400,000 barrels of crude oil daily to Iraq's State Oil Marketing Organization (SOMO) for export or domestic use.

Iraq's Supreme Federal Court ruled on Wednesday, 23 February, that the KRG should hand over all oil and non-oil revenues to Baghdad.

Furthermore, the ministry highlighted that contracts between the KRG and IOCs remained unapproved by the federal government. They also stressed the need to request copies of these contracts for review, emphasising that the IOCs have yet to respond. 

The ministry questioned the demand for compliance with unseen contracts, which it deemed contradictory to legal decisions. The ministry noted the Kurdistan Region's Production Sharing Contracts (PSCs), under which IOCs cover production costs while the KRG receives the majority of profits.

Additionally, the ministry addressed discrepancies in production costs, with Kurdistan region IOCs allegedly seeking three times the federal government's estimated production cost per barrel.

Regarding outstanding debts, APIKUR claimed the KRG owed IOCs over US$1 billion between September 2022 and March 2023, mainly stemming from prepayment schemes.

However, the Iraqi oil ministry said it would not recognise such claims.

"The claims demanded by companies include what they call paying off previous debts in billions of dollars, which are amounts unknown to the federal government and do not align with the contexts of borrowing according to the constitution and current laws," the ministry clarified. 

Despite previous calls from the Iraqi federal government to resume Kurdish oil exports and efforts to negotiate with Kurdistan Region IOC representatives, the ministry lamented the foreign companies' inflexibility.

Concluding, the ministry criticised APIKUR's statement for interfering in Iraqi sovereignty and urged foreign companies to respect Iraq's laws and judicial decisions instead of meddling in its internal and external affairs. 

Turkish President Recep Tayyip Erdogan is expected to visit Iraq by late March or early next month to discuss bilateral political, security and economic issues.

Several pending issues, including the Kurdistan Workers' Party (PKK), water, and the export of Iraqi oil through the Turkish port of Ceyhan, are expected to be addressed during the visit.