By : Shatha Kalel
In recent months, Iraq has faced a major dilemma regarding its oil exports, particularly from the Kurdistan region. Despite the agreement between the federal government and the Kurdistan region to resume oil exports more than a month ago, this agreement has not yet been implemented due to outstanding issues between the federal Ministry of Oil and the international oil companies operating in the region. This delay raises significant concerns about the region, Iraq’s economy, and the future of its oil export strategy.
Core of the Problem: Outstanding Issues and Contract Disputes The main reason for the delay in implementing the oil export agreement is the ongoing dispute over contracts between international oil companies (IOCs) and the Kurdistan Regional Government (KRG). The Kurdistan Oil Industry Association (APIKUR), which represents eight international oil companies, has stated that companies will not resume oil exports unless the Iraqi government adheres to the terms of the current contracts, including ensuring the payment of dues for previous and future oil exports.
International oil companies have put forward several demands for resuming exports, including non-interference with contracts signed with the Kurdistan Regional Government and clarification of the payment mechanism for each company based on the quantities of oil they produce and provide for export. These companies are also demanding the payment of outstanding dues, estimated at about $1 billion, which is the core issue between the federal government and international oil companies in Kurdistan. However, the Iraqi Ministry of Oil has rejected these demands, complicating the situation and delaying the resumption of oil exports.
Financial Consequences: Losses for Iraq and Kurdistan Delays in resuming oil exports have had a significant financial impact. Iraq has incurred losses exceeding $20 billion due to the halt in oil exports from Kurdistan, which represents about 400,000 barrels per day. These losses represent a severe blow to Iraq’s economy, which heavily relies on oil revenues.
The export halt coincides with a voluntary reduction in Iraq’s oil exports in 2023, as part of OPEC+ decisions to cut global oil production. This reduction has further exacerbated the financial pressure on the Iraqi economy, leading to lower oil export revenues and potentially damaging Iraq’s position in the global oil market.
Impact on Kurdistan: Economic and Political Repercussions For the Kurdistan region, the impact of the delayed oil export is particularly harsh. The Kurdistan government heavily depends on oil revenues to fund its budget and maintain public services. The halt in exports has placed immense pressure on the region’s finances, leading to delays in paying public sector salaries and increasing debts.
Moreover, the continued ambiguity over the oil situation creates a political dilemma for the Kurdistan government. The Kurdish leadership has had to balance its relations with Baghdad while managing the expectations of international investors. The independence of Kurdistan, particularly in managing its natural resources, has been a major point of contention with the federal government. Any failure to resolve the oil issue could further erode trust between Erbil and Baghdad, with long-term consequences for political stability in both the Kurdistan region and Iraq as a whole.
Role of International Oil Companies and Global Stakeholders The role of international oil companies in the Kurdish oil sector complicates the situation further. These companies have invested billions of dollars in exploration and extraction in the region, and their role is crucial for the continued development of the oil industry in Kurdistan. However, without clear guarantees of payment and respect for contracts, these companies are hesitant to resume their operations.
The United States has shown interest in the situation, with the U.S. Embassy in Iraq emphasizing the need to accelerate the resumption of oil exports, especially in light of Iraq’s commitment to meeting the production targets set by OPEC+. The U.S. Secretary of State spoke with Iraqi Prime Minister Mohammad Shia’ al-Sudani, stressing the importance of adhering to the terms of contracts with American companies, which could attract more investments.
Future Implications: A Long-term Crisis or Path to a Solution? The issue of oil and gas has been one of the major unresolved issues between the Kurdistan government and Baghdad since 2003. Despite numerous rounds of negotiations, a comprehensive solution has not been reached. The continued delay in oil exports has further escalated tensions between the two sides, complicating efforts to pass an oil and gas law that would provide a clear framework for managing Iraq’s oil resources.
Resolving the dispute will require significant concessions from both sides, especially regarding the sharing of oil revenues between the Kurdistan government, the federal government, and other provinces. In the long term, Iraq’s ability to address the issue of Kurdistan’s independence in oil production, as well as the interests of international companies, will be crucial in achieving stability in the country’s oil sector and ensuring its financial future.
Conclusion: The Need for Urgency and Cooperation As the delay in oil exports continues, the economic and political significance of the issue for both Iraq and the Kurdistan region increases. The longer the delay, the greater the damage to Iraq’s economy, including the loss of oil revenues and the erosion of investor confidence. Furthermore, ongoing disagreements between the federal government and the Kurdistan government over the sharing of oil revenues and contract terms will make it difficult to achieve a sustainable and mutually beneficial solution.
Ultimately, the future of Iraq’s oil exports depends on cooperation between Baghdad, Erbil, and international investors. For Iraq’s long-term economic and political stability, urgent steps must be taken to resolve these issues and ensure the country once again benefits from its valuable oil resources.
Economic Unit/North America Office
Al Rawabet Center for Research and Strategic Studies