Technicalities delay restart of Iraq Kirkuk oil exports

Market: Crude oil
26/04/23

The resumption of Iraqi crude exports from Turkey's Mediterranean port of Ceyhan is being delayed by "technical" issues between Baghdad and northern Iraq's Kurdistan Regional Government (KRG), according to a spokesman for the former.

It is now just over a month since Turkey ordered a halt to exports of Iraqi Kirkuk blend from Ceyhan. The decision was triggered by an international arbitration ruling that said Ankara had breached a 1973 pipeline agreement by allowing KRG oil to be exported without Baghdad's consent between 2014 and 2018.

The oil pipeline that runs from Iraq's Kirkuk region to Ceyhan is the only export route for crude produced by northern Iraq's oil fields. Iraq's federal government and the KRG signed a temporary deal on 4 April paving the way for exports to resume, but that has yet to materialise.

"The delay in the resumption of crude exports is strictly related to technical procedures that are awaiting resolution according to the legal framework," Iraqi government spokesperson Basem al-Awadi told Argus. Resolving these technical issues will "only take a short period of time", he said.

Iraq's federal oil marketer Somo is in negotiations with "companies responsible for the export of northern Iraqi crude", al-Awadi said, adding that the talks are "in accordance with Iraq's oil ministry and Somo's policy and their official selling prices".

The deal between Baghdad and the KRG stipulates that crude from the semi-autonomous Kurdistan region will now be jointly exported by the KRG's natural resources ministry and Somo. The technical sticking points relate to Somo's new role as marketer of KRG crude, which from now on will be subject to Baghdad's official formula prices. The deal also stipulates that an account will be set up at Iraq's central bank for Kirkuk oil revenues. The account will be managed by the KRG but Baghdad will have access to monitor and audit it.

Separate to the internal negotiations in Iraq, Turkey was ordered by an arbitration court at the International Chamber of Commerce to pay Baghdad $1.47bn in compensation for breaching the pipeline deal. But Ankara is holding out, pending an agreement over the payment and clarity over Iraq's position regarding a second arbitration case, again brought by Baghdad, on the same issue and relating to the period since 2018.

Baghdad is in talks with the Turkish government, al-Awadi said. Asked whether Iraq has received any guarantees from the Turkish side that crude exports from Ceyhan will resume when Baghdad and Erbil finally iron out their deal, al-Awadi said: "The Turkish authorities have requested a short period of time to examine the oil pipelines to ensure they were not subjected to any damage due to the recent devastating earthquakes."

Storage full

The halt to loadings from Ceyhan has cut roughly 470,000 b/d from Iraq's crude exports since late last month — around 400,000 b/d of KRG crude normally flows through the Kirkuk-Ceyhan pipeline along with an estimated 70,000 b/d of federal Iraqi oil. It has also forced field operators in the Kurdistan region such as London-listed Gulf Keystone and Norway's DNO to shut or sharply reduce production due to their limited storage capacity.

Canada-based Forza Petroleum, the operator of northern Iraq's 15,000 b/d Hawler field, confirmed to Argus that its "production is mostly shut-in". The company said it is "maintaining production at a low rate at certain wells in order to protect artificial lift pumps. The related oil is being directed to storage".

Forza said it has had no indication when pipeline flows to Ceyhan will restart. "The longer the uncertainty drags, we will start to consider demobilizing equipment and resources to reduce running costs," the firm said. "Such actions will impact the time it takes to restart production."

By Bachar Halabi and Nader Itayim

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