Companies Exporting Oil From Kurdistan Without Getting Paid

In May 2009 Iraq’s Oil Ministry said that the Kurds could export oil from two of their fields. The Kurdistan Regional Government (KRG) considered this a major victory in its running battle over oil contracts with Baghdad. The problem is that the Oil Ministry still says the Kurds’ deals are illegal, and refuses to pay the oil companies while accepting the profits from the added exports. The oil companies working in Kurdistan say that they expect to get paid eventually, but if they don’t it could undermine the Kurds’ oil policy.

On May 8 Baghdad said the Tawke and Taq Taq oil fields in Kurdistan could begin exporting through the Kirkuk-Turkey pipeline. That began on June 1. Norway’s DNO International operates the Tawke field, which is currently producing 40,000 barrels a day, while the Swiss-Canadian Addax Petroleum and Turkey’s Genel Enerji run the Taq Taq field, and are pumping 20,000-40,000 barrels a day. The problem now is who and when will the companies be paid. When the Oil Ministry allowed the exports they said that they would not compensate the companies because they considered the Kurdish oil deals illegal. That means the KRG must pay DNO, Addax, and Genel Enerji. Currently Kurdistan gets 17% of the Iraqi budget, but they have to pay the companies 18-20% of the oil profits. Many oil experts believe that the KRG could not sustain that rate for very long, meaning something needs to be worked out with Baghdad eventually.

An oil analyst told Reuters that the Oil Ministry will eventually come up with a payment plan, but can’t right now because of the political divisions between Baghdad and Kurdistan. That seems unlikely. The problems between the Kurds and Prime Minister Nouri al-Maliki are increasing, and will continue to as the January 2010 parliamentary elections near. Maliki has stood by his Oil Minister who has condemned the independent oil deals signed by the KRG. The current situation also favors Baghdad as it is getting the profits from the Kurdish exports with no costs. If something isn’t eventually worked out it could undermine the Kurds’ independent oil strategy, which would be fine by Maliki. In the meantime compensating these companies looks to be a political football with no clear resolution in sight.

SOURCES

Associated Press, “Norway’s DNO warns internal disputes over Iraq oil could hurt investment in region,” 6/11/09

Aswat al-Iraq, “Kurdistan oil exports to help reduce budget deficit-lawmakers,” 5/23/09

Ciszuk, Samuel, “Follow the money,” Iraq Oil Report, 5/28/09
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Hafidh, Hassan and Swartz, Spencer, “Iraq Ends Ban, Allows Kurds to Export Oil,” Wall Street Journal, 5/11/09

Hilterman, Joost, “Kurdish crude bails out Baghdad,” The Argument Blog, Foreign Policy.com, 5/13/09

Hoyos, Carola and Khalaf, Roula, “Kurdish exports resume despite Iraqi impasse,” Financial Times, 5/27/09

Ibrahim, Waleed, “UPDATE 4-Kurds say will launch oil exports, Iraq denies,” Reuters, 5/8/09

Reuters, “DNO says no pay schedule in place for Kurdish oil,” 7/17/09
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Visser, Reidar, “Norway’s Oil Industry and the Partitioning of Iraq,” Historiae.org, 12/7/05