The agreement to cut oil production by almost a quarter adds to deals struck by major oil producers to reduce their output for the foreseeable future as the coronavirus pandemic has seen global energy demand shrivel and oil prices tumble.
“We discussed the issue of oil production both in the Kurdistan Region and the whole of Iraq within the framework of the agreement between the OPEC members and the countries outside OPEC,” Iraqi oil minister Thamir Ghadhban said at a press conference with Kurdish officials on Sunday. “As you are all aware, we announced yesterday that Iraq will abide by the measures to reduce its oil production in stages and that is a 23 percent reduction.”
"We agreed to reduce the production of oil based on the OPEC agreement," Kurdistan Regional Government finance minister Awat Shikh Janab said, echoing Ghadhban.
A standoff between energy giants Russia and Saudi Arabia led to a flood of cheap oil on the world market, causing the price per barrel to drop to its lowest level in years. Moscow and Riyadh ended their oil price war on April 12, agreeing to reduce oil production by 9.7 million barrels per day (bpd) - equivalent to 10 percent of the world's daily supply - for May and June, with no certain end date to the COVID-19 pandemic and its disastrous global economic impact in sight.
OPEC producers and allies agreed further to continue the reduction until April next year. Iraq pledged to adhere to the agreement on Saturday.
Oil revenue has long been a thorny issue between Erbil and Baghdad. The Kurdistan Regional Government (KRG) has had an independent oil and gas sector since 2006, and began exporting its oil through a pipeline to Turkey for international markets.
Years of tension over the independent oil exports inflamed to the extent that then-Prime Minister of Iraq Nouri al-Maliki suspended the Kurdistan Region's share of the national budget in 2014 - disabling Erbil's ability to pay for the civil sector salaries of hundreds of thousands of employees.
Peshmerga forces took control of security in disputed Kirkuk territory that same year, allowing the KRG also seized the province’s bountiful oilfields. When Iraqi forces retook the area in October 2017, the KRG lost around half of its oil revenues, compelling the government to suspend exports via Turkey for several months.
Erbil and Baghdad have continued to bicker over oil-for-budget agreements, with the KRG failing to hand over a pre-agreed amount of its oil in return for its share of the national budget last year. A long contended 2020 budget share deal of 12.67 percent for the Kurdistan Region was agreed upon by the two parties in December 2019.
However the destructive economic impact of the coronavirus appears to have brought the two parties closer, as they further agreed to develop Kurdistan Region gas fields to be used to generate the electricity needed to fill the country's shortfall.
“We provisionally agreed to develop the gas fields in the Kurdistan Region in a way that benefits both sides and helps with generating electricity,” KRG finance minister Awat Shikh Janab said in the press conference.
Baghdad will send a delegation to Erbil to negotiate further investment in the gas field and to hammer out the technical details that will allow the agreement to proceed, Ghadhban said.
Kurdistan Region gas fields have already seen moves made to increase their capacity in recent times, with Pearl Petroleum, a consortium led by Crescent Petroleum and Dana Gas, striking a deal with the KRG in February 2019 to boost gas extraction at Chamchamal, especially the Khor Mor field, by 63 percent by the year 2023.
