Iraq eyes control of KRG crude marketing as row endures

A dispute keeping around 400,000 b/d of Iraqi Kurdistan crude from reaching international markets will only be resolved if Erbil hands over the rights to market its oil to the federal Baghdad government, according to a source.

Iraq and the Kurdistan Regional Government (KRG) have been locked in talks to try to settle the dispute, which was triggered by a ruling last week by the Paris-based International Chamber of Commerce's (ICC) court of arbitration. It found that Turkey, in allowing the export of KRG crude, had breached a 1973 bilateral agreement with Iraq. The ruling prompted Ankara to ask its state-owned pipeline operator Botas on 25 March to suspend all flows of KRG Kirkuk blend crude to the Mediterranean port of Ceyhan — the only viable outlet for the KRG to export its crude.

A first round of talks took place in Baghdad on 26 March, but broke up that same day after failing to make real headway. A second round began today, again in the Iraqi capital, and have yet to conclude.

The source said the talks hinge on a demand by Baghdad that state-owned oil Somo takes full control of marketing KRG Kirkuk from Erbil's ministry of natural resources. Baghdad is also asking to have access to the account into which the revenues from these exports are deposited, but only in an observation capacity.

Exports of Kirkuk Blend were 452,000 b/d in 2022, according to Argus tracking. More than 380,000 b/d of this was marketed by the KRG. Somo accounted for the rest, all of which went to Turkish refiner Tupras.

Between a rock and a hard place

That the two sides have been proactive in trying to resolve the impasse is positive. But anything other than a quick resolution to the dispute could put most, if not all, of the Kurdistan region's production in jeopardy. Several foreign oil companies operating in the semiautonomous region have begun diverting their production into storage, and at least one, Forza Energy, said it had shut in its production after running out of storage capacity.

Norwegian independent DNO said on 27 March its facilities could accommodate just "several days' production" from the Tawke and Peshkabir fields which, together, produced around 107,000 b/d in 2022. London-listed Genel Energy, which partners DNO at those fields and holds a stake in the 4,700 b/d Sarta and 4,500 b/d Taq Taq fields, told Argus the fields have "several days" and "three weeks" of storage capacity. Gulf Keystone Petroleum (GKP) said it was already producing at lower rates and could soon be forced to suspend production.

A fifth KRG-based operator, HKN Energy, said its storage facilities were approaching capacity and that it would have to shut down production within a week, unless the pipeline resumes operations.

By Nader Itayim