Crude exports from Iraq's semi-autonomous Kurdistan region will continue to be held back by major disagreements between Baghdad and Erbil over contracts held by international oil companies (IOCs) operating in the region, as well as the Kurdistan Regional Government's (KRG) commitments to trading firms, a person with knowledge of the situation told Argus.
"It is being said that the issue [of restarting crude exports] is between Baghdad and the KRG, and between Baghdad and Ankara. But all of that has a solution," the person said. The problem "only [lies] with the oil producing and trading companies."
This echoes remarks made by KRG prime minister Masrour Barzani on 21 November. He played down the prospect of an imminent restart to exports, saying they could only resume when the federal government agreed to pay the IOCs in line with their contracts. This is a problem for Baghdad, because it has technical service contracts (TSCs) with IOCs, while the KRG has production sharing contracts (PSCs).
"Those companies have a percentage from the profit-sharing and their cost of production is high. The total is up to around 60-65pc of the revenues," the person said. "[Their] production cost is around $30/bl and on top of it comes the revenue sharing. This doesn't work for the federal government. Companies [operating] in the south are given around $10/bl to $12/bl [for production cost]."
Barzani has said Baghdad's offer to pay back the IOCs in Kurdistan is unreal.
"They are introducing $6 for the cost of production for each barrel in Kurdistan," he said, adding that some wells in the northern region have production costs as high as $34/bl. With Baghdad clawing back control over the region's oil industry over the past year, the fate of these contracts have become a key issue.
"KRG is the owner of the contracts… we are not going to give that right up," Barzani said last week.
Another hurdle is control over the exports. Some of the world's largest trading companies have paid large sums of money upfront to the KRG, which is now obliged to comply with a deal it struck for Iraq's state-owned Somo to become the official marketer of KRG crude.
"Can they tell the traders: 'thank you, bye?'," the person said. "One of the things the KRG is saying: if Baghdad wants to solve this issue, it has to pay back the traders the amount of money the KRG owes them, in order to cancel the existing contracts. Baghdad says it can't do that."
Turkey closed the pipeline to Ceyhan on 25 March after losing an arbitration case with Iraq, but since early October it has insisted that the pipeline is ready to operate. Ankara has since said a restart is dependent on internal Iraqi issues. The pipeline carried 400,000 b/d of crude marketed by the KRG and around 70,000 b/d of federal Iraqi crude last year.
The closure nearly brought crude production in Iraqi Kurdistan to a halt. But operators have partially brought back output in recent months, selling to local buyers.
"Baghdad has no information about the levels of production in the KRG," the person said.
Iraq in recent weeks has come under pressure within the Opec+ coalition. Its output has averaged 4.34mn b/d in the August-October period, according to Argus estimates, exceeding its limit of 4.22mn b/d. Iraq put out a statement earlier this month confirming its commitment to its pledged output target. Opec+ meets this week.
