In September 2012, the Kurdistan Regional Government (KRG)
and Baghdad came to their third agreement over the former exporting its oil.
The previous two times, the deals broke down over disputes over paying the
energy companies operating in northern Iraq. The problem stems from the fact
that the central government wants control over oil policy and contracts, which
comes into conflict with the KRG’s wish to have their own strategy. That
unresolved issue is coming to the fore again as the Kurds dramatically cut
their exports at the end of November. This could eventually lead to the
breakdown of the latest agreement between the two sides.
In November, the Kurdish regional government decided to
reduce its oil exports. According to the state-run North Oil Company, the KRG was only pumping 70,000-80,000 barrels a day by the end of the month through
the northern pipeline to Turkey. Before that, Oil Minister Abdul Karim
Luaibi told the press on October 4 that the Kurds had reached 170,000 barrels a day. For the month, the region averaged 146,000. That was below its
200,000 barrel a day quota that it was supposed to reach that month. Deputy
Premier Hussein Shahristani, who is in charge of Baghdad’s energy policy, said
that payments to the oil companies working in northern Iraq would be stopped,
because the KRG was not meeting its mark. The recent drop in exports then, was
likely due to fears that Baghdad will follow through with Shahristani’s
threats. At the same time, it appears that the KRG lacks the capacity currently
to maintain its export levels, and meet its quota. Officials such as
Shahristani, who has been at the forefront of opposition to the Kurds’
independent energy policy, have used this fact against them. Kurdistan may be
stuck in a Catch 22 in this situation as a result. It could continue to pump
oil at its current rate, but it would know that would be below its mark.
Baghdad would constantly hang that over its head, and use it as an excuse not
to make any payments.
Baghdad and Irbil are currently in the midst of their third
oil deal. On April 1, the KRG halted its exports claiming that Baghdad owed $1.5 billion to oil businesses there. Then on August 7, Kurdistan restarted
sending oil through the northern pipeline in hopes that it would renew talks
with the central government. That eventually happened with a verbal agreement between the two on September 15. The KRG would export 140,000 barrels a day
for September, then 200,000 barrels for the rest of the year. At the time, it was pumping 120,000 barrels. In return, the central government agreed to pay companies in Kurdistan $858.3 million. Each one of the previous
agreements have started and ended the same way. There is great fanfare that
this is a breakthrough for the two sides, but then Baghdad fails to deliver. On
the one hand, the central government welcomes Kurdish exports, because they
help it towards achieving its production goals and raises money. The deals also
reinforce Baghdad’s position that it should be in charge of oil policy, and
that the Kurds have to go through it. At the same time, the government of Nouri
al-Maliki is opposed to the KRG’s independent oil contracts. It therefore
regularly withholds payments to punish Kurdistan for following its own path.
This series of short-term deals is frustrating for the
companies operating in the KRG. Genel Enerji and DNO for example, which operate
the Taq Taq and Tawke fields threatened to stop foreign sales through the
northern pipeline in early October, because they had not been paid yet. Together, the two firms were responsible for 110,000 barrels of Kurdistan’s
146,000 barrels of exports in October. The Finance Ministry eventually sent
just over $500 million to the KRG later that month, which was distributed to DNO at the beginning of December. Kurdish authorities promised that the second installment was to arrive soon afterward, but then later press
reports said that it wasn’t going to be until early 2013. Now there are
questions about whether it would happen at all due to Deputy Premier
Shahristani’s threat. In total, DNO has only been paid $104 million in June
2011 and $60 million in September 2011, and will receive $116 million this
month for all of its exports since 2008. Oil companies in Kurdistan are waiting
for a national hydrocarbon law to be passed, so that there are no more
conflicts over their operations. That would allow them to legally export, and
be able to monetize their investments. Until then, the firms have to rely upon
these unreliable short-term export contracts where they only get paid for a
fraction of their work.
The third export deal between Iraq’s central and regional
governments is still in effect, but it is fraying at the edges. The Kurds are
sending oil through the northern pipeline again, and they have received half a
million dollars to pay the companies that are operating there. At the same
time, it is not meeting its quota, and Baghdad has once again threatened to cut
off payments. The two sides are still far apart on oil policy, and that will
continue to lead to tension and breakdowns in these agreements. If the current
one ends, and there are plenty of signs that it eventually will, it will be
followed by another. The Kurds need these deals with Baghdad to show the energy
companies that they will eventually be able to get a full return on their
investments. The central government welcomes the Kurdish contributions, because
it brings in more money and boosts its monthly export numbers. The problems
rise from the fact that Baghdad holds the purse, and will continuously hold
this over the head of the Kurds until their differences over oil are resolved.
Their positions are so far apart however, that this will not come anytime soon,
so for the foreseeable future official Kurdish exports will be at the mercy of
these volatile agreements.
SOURCES
Associated Press, “Iraq’s Kurds pledge to raise oil exports
in 2013,” 10/22/12
Ersoy, Ercan and Razzouk, Nayla, “Iraq to Pay Kurdistan Oil
Producers Next Week, Hawrami Says,” Bloomberg, 9/24/12
Kami, Aseel, “UPDATE 1-Oil exports from Iraq’s Kurdish
region rise to 170,000 bpd,” Reuters, 10/4/12
Al-Khayat, Faleh, “Iraq’s oil output slumps by 200,000 b/d
in October,” Platts, 11/28/12
Lee, John, “Tawke Export Payment Received by DNO,” Iraq Oil
Report, 12/3/21
Mackey, Peg, “KRG gets oil payment from Baghdad, exports to
flow,” Reuters, 10/8/12
Osgood, Patrick, “Kurdistan slashes oil exports over payment
feud,” Iraq Oil Report, 11/29/12
Rahman, Mohammed Abdul, “Erbil and Baghdad agree on
reimbursing oil companies,” AK News, 9/15/12
Razzouk, Nayla, “Iraq’s Kurds Say Crude Exports Rise to
140,000 Barrels a Day,” Bloomberg, 9/20/12
Reuters, “Genel could halt Kurdish oil exports over pay
delay,” 10/5/12
- “UPDATE 1-Iraqi Kurdish oil exports down
‘significantly’-sources,” 11/27/12
Sabri, Abdullah, “Kurdistan may increase its oil exports to
more than 250,000 bpd,” AK News, 9/19/12
Special Inspector General for Iraq Reconstruction,
“Quarterly report to the United States Congress,” 10/30/12
