Autonomy Curbed? Kurdish Oil Exports Hit Snags from Turkey and Baghdad

Editor's Note: This article was originally published by the Moshe Dayan Center for Middle Eastern and African Studies.  For the past three months, the Kurdish region in northern Iraq and its government, the Kurdish Regional Government (KRG) have been facing one of the most serious challenges in the two decades of its formal existence. The pipeline through which it exports some 400,000 barrels of oil a day (b/d) – 10 percent of the overall Iraqi exports and 0.5 percent of global production – has been closed since March 25, at an estimated cost of close to a billion dollars a month (approximately $30 million daily). The KRG has depended on income from oil exports for some 80 percent of its budget. The stoppage came after a decade-long arbitration between the Government of Iraq (GOI) and Turkey by the Paris-based International Chamber of Commerce was decided in March in Iraq’s favor. Turkey was ordered to cease loading Kurdish oil without GOI supervision, and to pay Baghdad $1.5 billion in owed fees (Baghdad had demanded $30 billion). Baghdad had claimed that use of the pipeline from northern Iraq to the port of Ceyhan in Turkey by the Kurds without GOI consent was in violation of a bilateral agreement between the two countries from 1973, the annex of which states Turkey would only buy oil from Iraq’s state-owned oil marketer. The pipeline was laid in 2013 to facilitate the independent export of oil produced in Iraqi Kurdistan, previously carried in tanker trucks, through Ceyhan. Kurdistan’s economy has been dependent on independent export of their oil production since 1991. This followed the First Gulf War and the establishment of the de facto Kurdish autonomy in the governorates of Dohuk, Erbil, and Sulaymaniyah, which was formalized upon the creation of federal Iraq in 2003. Iraq had tried for the past decade to gain control of the Kurdish oil exports, as part of a larger effort to curtail Kurdish autonomy in Iraq, as well as to limit its competition with other Iraqi oil exports: Kurdish oil has been offered at a discount of $10-20 per barrel, creating a two-tiered market for Iraqi oil. The Kurdish region is also reportedly the major channel for smuggling of over 40,000 barrels oil a day, from Iraq proper to neighboring countries. Various Iraqi actors – especially Iranian-backed Shiite militias –take advantage of the differentials between heavily subsidized prices for oil products inside Iraq (not in Iraqi Kurdistan) and the prices in neighboring countries (notably Syria), to obtain profits through arbitrage. After the arbitration ruling, Turkey immediately stopped the loading of Iraqi oil at Ceyhan. This included 75,000 b/d exported through the pipeline by the Iraqi government oil company from the oil fields of Kirkuk, seized by the GOI after the abortive 2017 Kurdistan-wide referendum on independence. (Iraq as a whole accounted for 27 percent of Turkey’s imports of oil and other petroleum products in December 2022, behind only Russia, according to the most recent data  from the Turkish Energy Market Regulatory Authority.) On April 4, Erbil and Baghdad quickly reached an interim agreement on the method of export of northern Iraqi oil in the future, and, on May 10, Baghdad formally requested from Turkey to renew exports. Turkey has yet to do so. It apparently wants to use the current leverage to open direct negotiations over the amount of money it has to pay to Iraq, and to perhaps pressure Iraq to suspend its efforts in US courts to enforce the arbitration ruling, as well as to settle a second ongoing arbitration between the two countries regarding oil flows since 2018. It is reported that Turkey also wants to pressure Baghdad and the KRG to settle their own oil dispute so as to avoid disputes in the future. It is also fair to note that Turkey suffered major earthquakes in February (which it claims also affected the Ceyhan facilities and has been the cause of delays in renewing shipments) and that the country has been embroiled in the past months in crucial elections, which may have distracted the political level from other issues. In any case, Iraq’s overall exports dropped in May to their lowest in nearly two years, due to the stoppage of northern oil exports. The IMF said earlier this month that it has caused Iraqi economic growth to slow in recent months. A first technical meeting was held between a Turkish technical delegation and the Iraqi oil ministry on June 19. Additional meetings are expected, but the renewal of exports does not seem imminent. An Iraqi official noted that “a decision to restart oil flow needs political talks on higher levels: issues blocking the resumption of oil exports are more political than technical.” Oil and the Struggle for Kurdish Autonomy There has long been a bitter dispute between Erbil and Baghdad regarding who controls the energy sector in Iraqi Kurdistan. At the time of the establishment of the new Iraqi system in 2003, it was agreed that the KRG would export from its fields via Iraq’s State Oil Marketing Organization (SOMO), and refrain from marketing oil independently.