Tuesday, November 20, 2018

Kirkuk Oil Fields And US Pressure Lead Iraq To Agree To Use Kurdish Pipeline Again

(Amirki)

Iraq’s central and regional governments have made a new deal to export oil via the Kurds’ pipeline to Turkey. This came about due to several factors. First, production is increasing at the Kirkuk fields after the federal government took them over in October 2017 from the Kurds, and there was no outlet for the oil. Second, the Trump administration put pressure upon Baghdad to follow its sanctions on Iran and increase exports to make up for the loss of Tehran’s oil. Finally, there was already an agreement on the table between Baghdad and Irbil left from the Abadi government. The question now is can this deal last as the previous ones have all broken down.

In the middle of November oil from the federal government began flowing through the Kurdistan Regional Government’s (KRG) pipeline to Turkey after a year’s hiatus. November 15 was the first day the Oil Ministry tried a test run, and then the next day the Ministry officially announced the deal. Initially Baghdad will be sending 50,000-100,000 barrels a day to Turkey, and that is supposed to eventually increase to over 200,000 barrels. The central government stopped using the Kurdish pipeline last October when the KRG held its independence referendum, which Baghdad objected to. The Abadi government made an agreement with the KRG last month, and the new Prime Minister Abdul Mahdi signed off on it. The central government is hoping to repair relations with Irbil and wants to increase its oil sales.

This petroleum will come from the Kirkuk fields, which have largely been shut down due to the dispute with the Kurds. The North Oil Company (NOC) that runs the fields increased output from 256,000 barrels a day in September to 289,000 barrels in October. Even then two of the major fields in the province had been mostly dormant for a year now because there was nowhere to send its oil after Baghdad stopped using the Kurdish pipeline. This put a lot of pressure on the central government to resolve its issues with Irbil so that Kirkuk’s resources could be utilized.

Another influence was the United States, which pushed Iraq towards working with the Kurds due to the Iran sanctions. Last month Baghdad announced that it would stop trucking Kirkuk oil to Iran due to Washington’s restrictions. That was for only 30,000 barrels a day, but it was an outlet for Kirkuk. The NOC was faced with possibly reducing production as a result, but it now has access to the Kurdish pipeline. The Trump administration has also complained about high oil prices, and wanted to make sure they didn’t go up when Iran’s exports started being cut. Sending Kirkuk petroleum to Turkey will help with that. There is one snag in those plans however. 60% of the Kurdish pipeline is owned by Russia’s Rosneft, which is under U.S. sanction as well. It was not clear whether that was included in the White House’s calculations. Washington could give Iraq an exemption.

Iraq has used the KRG’s pipeline before, but something has always come up. There have been disputes over Kurdistan independently exporting its oil through the pipeline, arguments over the budget, and lastly the referendum. Given that history this could be another short term arrangement that will fall apart as the differences between the two sides have been more important than what the two can gain from working together. At the same time, the Americans got involved this time which will be an outside force to try to keep the two together. There is also a new prime minister in Baghdad so he could take a new path with the KRG. In the meantime, Kirkuk’s fields can finally start exporting again, raising more money for the state.

SOURCES

Al Ansary, Khalid and Smith, Grant, “Iraq Resumes Oil Exports From Kirkuk After Year-Long Halt,” Bloomberg, 11/16/18

Iraq Oil Report, “Kirkuk exports resume in political test run,” 11/16/18

Kullab, Samya, Van Heuvelen, Ben, “Pipeline and payments fuel Kurdistan’s oil sector revival,” Iraq Oil Report, 11/7/18

NRT, “State Dept Hails Kirkuk Pipeline Deal, As Additional Rosneft Sanctions Loom,” 11/17/18

Rasheed, Ahmed, “UPDATE 2-Iraq to halt Kirkuk oil exports to Iran, may resume them to Turkey,” Reuters, 10/26/18

Van Heuvelen, Ben, “Kirkuk fields bolster Iraq’s production gains,” Iraq Oil Report, 11/8/18

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