Iraq has put a halt to crude oil exports from its semi-autonomous region of Kurdistan and the northern Kirkuk fields. Following an arbitration case that favored Iraq, the country began stopping shipments of 450,000 barrels per day (bpd) of crude from Kurdistan’s oil fields in a move to curb the calls for independence from its northern region. The Halabja refinery in Iraq’s Sulaimaniya province stopped receiving crude on Saturday, while officials from the Iraqi government have called for control back over all Iraq’s crude sales.
Talks on resumption of crude exports from Kurdistan via Iraq-Turkey pipeline
Despite this move, both Kurdistan and Iraq’s federal government have reportedly come back to the negotiation table to discuss resuming crude oil exports through the Iraq-Turkey pipeline after talks stalled earlier this year. Kurdistan’s oil exports came to a halt for several days due to ceased crude exports from the federal government of Iraq. However, officials from both sides are set to return next week for another round of talks regarding the resumption of Kurdistan’s oil exports. These talks could result in the restarting of the major revenue source for northern Iraq.
Oil companies in Kurdistan have already begun shutting down their fields due to limited storage capacity and temporary cease deliveries to the Iraq-Turkey Pipeline. For instance, DNO ASA, a company pumping a quarter of Kurdistan’s crude oil exports, has started an orderly shutdown of its oil fields. Conversely, London-listed Gulf Keystone Petroleum has stored enough crude to continue production at a curtailed pace over the next few days before suspending production.
$6 billion repayments halted
The suspension has also caused a major setback as orders halt on $6 billion in repayments owed to energy traders who pre-paid for crude before the suspension. Vitol and Petraco, traders in oil and gas, report figures of $750-800 million each owed to them by Kurdistan. Consequently, the suspension has caused some oil companies to shut down production, further complicating the financial market’s investments. Since Kurdistan has managed to grow oil exports independently from Baghdad for the past decade, this sudden suspension has dealt a significant blow to its economy.
Significance of repayment schemes
Kurdistan’s total debts, amounting to $6 billion, owed to traders after pre-paid crude orders were suspended have no alternative repayment scheme in place. The Kurdish government plans to send a delegation to the federal government in Baghdad to resolve these issues. However, Baghdad wants control over and supervision of selling prices via its state marketing firm SOMO while also requiring that oil sales revenues be deposited in an independent bank account.
Foreign oil firms have linked their investment plans with the reliability of KRG payments, which have faced months of delays. The arbitration ruling in favor of Iraq against Turkey will not impede relations with Baghdad’s government and dialogue will continue. Indeed Iraq will also discuss ongoing ways to ensure oil exports through Ceyhan and state-owned SOMO’s obligations with oil companies.
In conclusion, although the talks on resuming crude exports from Kurdistan via Iraq-Turkey pipeline may result positively, the still-turning tide shows that it may be some time before actual barrels can finally move across international waters. The halt in $6 billion repayments owed to energy traders only worsens Kurdistan’s financial situation, prompting it to explore other means of generating revenue that are already being hampered by this suspension.
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