Temporary oil agreement between Baghdad, Erbil

March 31, 2014


After months of disputes over the Kurdistan Regional Government’s (KRG) right to export oil directly through Turkey without the approval of the Iraqi central government in Baghdad, both governments have temporarily agreed that the Kurdistan Region will be entitled to export 100,000 barrels per day through the Turkish-Iraqi pipelines network. This procedure will be launched from the port of Ceyhan as of April.

Kurdistan Region Prime Minister Nechirvan Barzani considered the agreement “a gesture of goodwill … aimed at providing the necessary opportunities to contribute to the export via the Iraqi oil pipelines network, and at increasing the chances of success of negotiations with Baghdad.”

The agreement will allow the annexation of supplies from the Kurdistan region to the quantities produced by the federal government from the north through the Turkish-Iraqi pipeline system.

 Moreover, the State Organization for Marketing of Oil (SOMO) will oversee the procedure, to check the size of exported supplies, monitor the importing companies and check the price-based equations.

According to press sources, it has been agreed to open a subaccount in the name of the Kurdistan Regional Government in the Central Bank of Iraq-Development Fund for Iraq (DFI), which was created at the US Federal Reserve Bank of New York.

It should be noted that Iraqi oil revenues have been deposited in this account since 2003. The United States has played an important role in the settlement of this dispute.

 According to a statement issued by the White House, Vice President Joe Biden telephoned Iraq’s Prime Minister Nouri al-Maliki and President of the Kurdistan Region Massoud Barzani, stressing his government’s readiness to “continue mediation with all parties.”

The interpretation of the ambiguous terms of the 2005 Constitution is at the basis of the differences between Baghdad and Erbil.

 The Baghdad-based Iraqi central government considers itself to be primarily responsible for the petroleum industry in the country, in consultation with the provinces and oil districts.

Meanwhile, the KRG has a completely different perception of the situation.

 It believes that it has full powers to solely develop its petroleum resources according to its own requirements, without the need to report to Baghdad.

 However, the Baghdad central government has rejected this interpretation for the past years, which widened the gap between the two sides, despite that the Kurdish bloc serves as an essential part of the political forces that took up the reins of power after the occupation.

Nevertheless, differences and adverse reactions between two sides were limited to either preventing international oil companies operating in Kurdistan from working in other provinces in Iraq, or to mutual accusations — where Baghdad has been accused of not transferring the necessary funds to Kurdistan, while the latter has been accused of not implementing its commitments to provide the federal government with supplies of oil it pledged to deliver. This has adversely affected the political relations.

Recently, a dispute of another type broke out between the two parties. The KRG has decided to start exporting oil through the Turkish-Iraqi pipeline system, instead of smuggling it into the Turkish territories, as was the case previously.



The KRG has recently constructed a pipeline stretching from its oil fields to the Turkish-Iraqi pipeline system inside Turkey. Approximately 1 million barrels have been transported since the line was completed in the first few weeks of 2014, and the oil is being stored in the port of Ceyhan. However, export of this oil has yet to begin, because the government had agreed with Kurdistan to lay the pipeline and that it would be in control of allowing export.

Furthermore, Ankara has agreed with Baghdad that it would not allow any exports of Iraqi oil without the approval of Baghdad, which considered this move as a violation of the Iraqi constitution. Ankara has also had negotiations with each Iraqi party separately so as to reach a compromise and bridge the gap. Turkey’s attempts were to no avail, which led the United States to start mediation.



Why is the deal being struck now? Difficulties and disagreements have exacerbated between Erbil and Baghdad to the extent that they led to internal pressure on both sides. Oil companies working in the Kurdistan region pressured the government in Erbil to find outlets for oil companies to export their goods.



This was the main reason behind the construction of the pipeline linked to the Turkish-Iraqi pipeline system. The new pipeline is also an attempt on the part of the Kurdistan region to get rid of Baghdad’s pressure. However, oil has been stored in the Ceyhan port without being exported, which negatively affected the oil companies that have been promised to start exporting as of the first quarter of 2014. Moreover, the Kurdish bloc attempted to disrupt discussions and the vote on the budget in parliament, which prompted the Baghdad government to stop transferring funds to the region and thereby suspending salaries.


http://www.al-monitor.com/pulse/politics/2014/03/temporary-oil-agreement-baghdad-erbil.html#