International oil companies (IOCs) operating in Iraq's semi-autonomous Kurdistan region have requested US help to persuade the federal government in Baghdad to resume crude exports from the north of the country, which remain shut in despite numerous rounds of talks.
"We request your immediate assistance to persuade the federal government of Iraq to promptly resolve issues that have resulted in the halt of greater than 400,000 b/d of crude oil exports from the [Kurdistan region of Iraq] KRI to global markets," the Association of the Petroleum Industry of Kurdistan (Apikur) said in a letter sent to the US Congress.
The pipeline that transports northern Iraqi crude to Turkey for onward export was shut in March last year after Ankara lost an arbitration case with Baghdad. Turkey has insisted since early October that the pipeline is ready to resume operations and that the delay in restarting crude flows is down to internal Iraqi issues.
The White House extended an invitation to Iraq's prime minister Mohammed Shia al-Sudani in September last year during his visit to New York for the UN General Assembly, but since then the conflict between Israel and Gaza-based militant group Hamas has raised tensions between Washington and Baghdad. In its letter, Apikur asks Congress to take the opportunity of al-Sudani visiting Washington to impress on him that Iraq's government "must allow US oil companies, and all Apikur members, to freely produce and export their oil to the global markets".
The association calls on Baghdad to "immediately resolve two issues — the full implementation of the Iraqi budget for the Kurdistan region which is essential for western and American companies to resume operations, as well as payment surety for past and future oil exports in accordance with their contractual rights".
The letter follows a meeting between the IOCs and the Kurdistan Regional Government (KRG) on 24 January to discuss progress in the talks to resume crude exports and the issue of crude payments. The IOCs want to know how and when they will get paid, a source told Argus.
Stumbling blocks
The KRG has held several meetings with Iraq's federal government since the pipeline closure, but major disagreements over the IOC's contracts and the KRG's commitments to trading firms have prevented a restart of exports.
Baghdad is studying an amendment to its federal budget that would enable it to pay IOCs working in the Kurdistan region, al-Sudani said last month. The amendment would see a compromise agreement between Baghdad and Erbil over the recovery cost for oil produced in the Kurdish region. The initial article in the already approved budget law requires the federal government to pay an average of $8/bl as recovery cost for oil produced in Iraq outside the Kurdish region, al-Sudani said. The KRG claims production costs in the region are around $30/bl.
"[The IOCs] want the current production-sharing contracts (PSCs) to be enforced and like the payment terms to be the same as those contracts but what could be different is that the payments can directly come from [federal marketer] Somo or still through the KRG," a source with knowledge of the matter told Argus. "There is just not a clear path right now on the invoicing and who will make the payments. And in [the IOCs'] experience, there have been times where the KRG prioritised everything else they had to pay and oil companies were last to get paid," the source added.
Apikur held meetings in Baghdad on 7-9 January with representatives of Iraq's federal government, the KRG and the IOCs, "but, thus far, there has been no concrete progress towards that", it said.
The Iraq-Turkey pipeline carried 400,000 b/d of crude marketed by the KRG and around 70,000 b/d of federal Iraqi crude in 2022. Its closure last year initially prompted a near collapse of Iraqi Kurdish oil output, but operators have brought back a portion of their production in recent months through discounted sales to local buyers.
