In mid-October, Baghdad struck a deal with the KRG to resume Kirkuk oil exports through the pipeline to Ceyhan, a year after federal forces took control of the oil-rich province’s fields, Reuters reported, citing unnamed sources.
The agreement would have been one of the last acts of the outgoing government of former Prime Minister Haider al-Abadi. The deal must still be approved by new Prime Minister Adil Abdul-Mahdi.
US sanctions on Iran’s oil sector will come into force on November 4.
Iraq had been exporting less than 30,000 barrels per day to Iran via truck, though that route was fraught with security concerns and poor road infrastructure. That will now cease in order to comply with US sanctions, Reuters reported.
Baghdad’s decision to make a deal with the Kurdistan Region was driven by economic necessity, said Bilal Wahab, Wagner Fellow at the Washington Institute for Near East Policy.
“The Iraqi government needs this income,” he told Rudaw TV. “These 300,000 barrels of oil that the Iraqi government was not prepared to export via the Kurdistan Region before because of a political problem – the equation has now changed.”
That change is improved ties between the regional and federal governments, he said, noting that “Kurds have returned to Baghdad.”
New governments are being formed in both capitals, opening the door to changes and a situation where “economic objectives might have been prioritized over political objectives. This is an important point and a positive development.”
Wahab also thinks the US is putting pressure on both Erbil and Baghdad to comply with sanctions on Iran.
With expectations that Iranian oil sales could decrease by a million barrels, "The existence of hundreds of thousands of barrels of Kirkuk oil can make up for decline in oil reserves in the market, and this will prevent a hike in oil prices," he explained.
Amid disputes with Erbil late last year and into the new year, Baghdad had floated the idea of building its own pipeline to Turkey, but the entire border with Turkey is within Kurdistan Region territories, meaning that the KRG would have to agree to any such project.
KRG spokesperson Safin Dizayee said in September that they had offered a deal to Baghdad that would have allowed Iraq to export Kirkuk oil through the KRG’s pipeline for a fee that would have gone directly into the private sector, not the regional government.
Baghdad rejected the plan, said Dizayee, saying the decision cost the federal government some $5 billion in revenue.
Iraq’s new Oil Minister Thamir al-Ghadhban, who took control of the ministry on Thursday, said he would proceed with plans to increase oil and gas production, as well as upgrading and modernizing infrastructure.
Iraq’s economy is dependent on oil.
Updated at 9:09 pm
