Iraq: Baghdad and Kurds strike deal to resume Kirkuk oil exports

Iraq says it has reached an initial agreement with Kurdish authorities to restart exports from the oilfields of Kirkuk, one year after flows were halted due to a standoff between the central government in Baghdad and Kurdistan’s semi-autonomous region.

Asim Jihad, spokesperson for Iraq’s oil ministry, said on Friday the country’s new Prime Minister Adel Abdul-Mahdi’s government had struck a deal with the Kurdish regional government to export 50,000 to 100,000 barrels per day (bpd).

“The federal government and the government of the Kurdish Region of Iraq (KRI) reached a preliminary agreement to resume oil flows starting today from the Kirkuk fields through the KRI’s pipeline to the Ceyhan port in Turkey,” he told the AFP news agency.

Most of Iraq’s exports come from southern fields, but Kirkuk is one of the biggest and oldest oilfields in the Middle East, containing – by some estimates – nine billion barrels of recoverable oil. 

Exports have been on hold since Iraqi security units took the lucrative fields from Kurdish forces in October 2017, in retaliation for a controversial referendum on secession in the region.

The halting of shipments from Kirkuk stopped almost 300,000 bpd flowing out of Iraq towards Turkey and international markets – causing a net revenue loss of some $8bn over the past year.

‘Really positive’

Analysts hailed the announcement as one of the earliest victories for Abdel-Mahdi, a previous oil minister known for his good relations with Kurdish authorities in Erbil, as well as President Barham Salih. 

Rebwar Fatah, researcher at the London-based Middle East Consultancy Services, described the move as “really positive” and “beneficial”. 

“This is the beginning of the easing of tensions between Baghdad and Erbil after what happened on October 16, 2017,” he told Al Jazeera, referring to the Iraqi government forces’ takeover of the Kurdish-held city of Kirkuk.

“It is also the beginning of a longer dialogue between the two sides,” he said. “It is beneficial for the people of Kurdistan and adds to the stability of Iraq in general.”

The Kirkuk fields have changed hands several times in recent years. 

The Kurds took control of Kirkuk and its oilfields after ejecting fighters of the Islamic State of Iraq and the Levant (ISIL, also known as ISIS) armed group, who in 2014 had driven the Iraqi army out.

The pipeline Baghdad once used for export via Turkey was wrecked by ISIL – leaving only one working pipeline, built and controlled by the Kurds. 

Iraq’s Kurdish region is producing and exporting some 400,000 bpd via that pipeline.Resumed flows from Kirkuk will lift this to 450,000-500,000 bpd, but short of the 700,000 bpd the region had exported at some points during 2017.

Baghdad and Erbil have yet to find a compromise over maximum flow levels as well as budget transfers from the central government to Erbil – something the two sides have struggled to agree on for many years.

The resumption of oil exports comes less than two weeks after the United States re-imposed sanctions on Iran‘s oil, energy and finance sectors.

Washington sees Kirkuk as an option to help offset global shortfall in oil supply caused by sanctions on Iran.

“This deal is seen as a win for the US. Washington has been pushing for this especially when sanctions were reimposed on Tehran.” said Yerevan Saeed, Kurdish affairs analyst at the Middle East Research Institute. 

Following the failed Kurdish referendum, the only avenue for Kirkuk crude to reach international markets was through Iran via tanker trucks, he explained. 

The flow of oil through the Kurdish pipeline will “distance Iraq from Iran”, Saeed told Al Jazeera. “It ramps up pressure on the Iranians.”

Iraq is OPEC’s second-largest oil exporter at 4.5 billion bpd. Oil exports make up almost the entirety of the government’s revenue, bringing in $8.5bn last month.

John Bolton, the US national security adviser, welcomed Friday’s announcement as a “promising first step to return to 2017 levels.”

The resumption of exports can “restore lost revenue for Iraqi people [and] services [and] make Iraq energy independent”, he wrote on Twitter.