To avoid negative repercussions: Agreement signed between Iraq and Kurdistan to export region’s oil

Mohamed Shaat

After stopping crude oil exports from the Kurdistan region and the northern fields of Kirkuk to Turkey following a decision issued by the International Court of Arbitration in Paris in favor of Iraq’s federal government, an agreement was reached between Baghdad and Erbil to resume oil exports from the Kurdistan region.

Following the signing of the agreement, Iraqi Prime Minister Mohammed Shia’ al-Sudani said during a joint press conference with the head of the Kurdistan Regional Government, Masrour Barzani, “We appreciate the efforts of the two parties, the federal government and the Kurdistan region, for the professional and responsible negotiations that took place, and we hope good comes from them, and we hope that they will immediately start implementing the agreement.”

After the conference, Barzani tweeted that this agreement is “temporary” because it will allow the resumption of exporting the region’s oil until the Iraqi parliament votes on the oil and gas law, but he added that “it is a vital step to end the long dispute between Baghdad and Erbil.”

According to the agreement, which was signed in the presence of Sudani and Barzani, the sales of Kurdistan’s oil will be carried out through the Iraqi State Oil Marketing Organization (SOMO), which means that Erbil will no longer manage the oil file itself.

Avoiding negative repercussions

Mahmoud Khoshnaw, a leader in the Patriotic Union of Kurdistan (PUK), said in exclusive statements to the Reference that the oil file has four stages, including extraction, production, export and marketing, and what was agreed upon in principle came to avoid the consequences of not exporting oil on the salaries of employees and retirees and on the economy of the Kurdistan region, considering there is no other source of financing other than oil exports, which exceed 95%, and thus will affect the monthly revenues. He noted that the lack of agreement would naturally lead to an economic and political uproar, so the agreement came in order to resume oil exports.

Khoshnaw explained that the second phase of the agreement will be transferred to the Federal Oil and Gas Law, which will enter the steps of extraction and production, and this is a complicated matter with companies, because the contracts in the Kurdistan region are “partnership” contracts, but the contracts in Baghdad are “service” contracts. He believes this will be problematic in federal oil and gas legislation.

“However, what has happened so far is the initial agreement to resume export through the conveyor pipeline from the Kurdistan region to Turkey and then to Ceyhan through the Kurdistan Regional Government and the Ministry of Natural Resources,” Khoshnaw said, noting that the agreement also includes that marketing is carried out by SOMO, and there is a bank account owned by the federal government to which incoming oil revenues will be added.

These imports will be within the share of the Kurdistan region, Khoshnaw said, and if the amount is suitable for the share of the Kurdistan region, the amount will remain, and if it is deficient, it will be added, and if it is surplus, it will be transferred to the federal account, meaning that the region will take its percentage from the budget. Of course, that will happen after the approval of the budget, which until now is a draft budget.

According to Khoshnaw, the third aspect of the initial agreement relates to the structure of SOMO, in which there is no representation of the Kurdistan region, so it was agreed in principle that there would be representation of the Kurdistan region in the company. However, all these matters remain interim agreements subject to changes and further negotiations.