Iraq's government has proposed doubling the amount it pays the Kurdistan Regional Government (KRG) for crude production and transportation costs, as it seeks a compromise aimed at resuming exports from the semi-autonomous northern region.
The government on 5 November approved an amendment to the three-year budget passed in 2022, setting compensation at $16/bl. But this remains $10/bl below the KRG ministry of natural resources' calculation of production costs in contracts it signed with international oil companies (IOCs) operating in Iraqi Kurdistan.
"The KRG is not yet on board with the new arrangement," a senior Iraqi source with knowledge of the matter told Argus. Another source, with knowledge of IOC thinking, described the move as "a positive development" and said companies are "waiting to see what the Iraqi parliament decides." Parliament must ratify the amendment.
The amendment stipulates "production and transportation costs for each field will be estimated fairly by an internationally specialised consulting entity" to be selected mutually by Iraq's oil ministry and the KRG's ministry of natural resources within 60 days.
"If no agreement is reached within this period, the Federal Council of Ministers will determine the consulting entity," the government said.
Parliamentary finance committee member Narmin Maarouf said the decision is "an important step to resolve one of the outstanding issues between the Kurdistan region and Baghdad."
Iraqi prime minister Mohammed Shia al-Sudani has been working on a middle ground agreement that would allow it to pay IOCs operating in Kurdistan in return for a compromise with the KRG and the IOCs over the recovery cost for oil produced in the region. In this case, the KRG has to hand over its crude oil production to state-owned marketing firm Somo.
A senior Iraqi government official said told Argus the result of the US presidential election may shift things in Iraq, "but the decision is clear, the Iraqi government wants to solve the issue."
Around 470,000 b/d of crude exports from Kurdistan have been absent from international markets since March 2023, when Turkey closed the pipeline linking oil fields in northern Iraq to the export terminals at Ceyhan. That followed an international tribunal ruling that said Ankara had breached a bilateral agreement with Baghdad by allowing KRG crude to be exported without the federal government's consent.
Iraq's federal government is finding it difficult to strike a balance between repairing its rift with the KRG and complying with its Opec+ commitments. But the KRG "cannot immediately resume exporting around 400,000 b/d," the Iraqi source said.
