Iraq Parliament clears longstanding pay dispute over kurdish oil
Iraq’s parliament has passed a long-awaited plan that will significantly increase payments to oil companies operating in the semi-autonomous Kurdistan region. This crucial move paves the way for the resumption of oil exports from the region, which have been halted for nearly two years due to a complex dispute over revenue sharing and payment structures.
On Sunday, the Iraqi assembly approved a plan endorsed by the cabinet in November, which amends the country’s budget to allocate funds that will allow Baghdad to pay $16 per barrel for oil production and transportation in the Kurdistan region. This step marks a significant breakthrough in the negotiations between the federal government and the Kurdistan Regional Government (KRG), yet it falls short of the $26 per barrel that Iraqi Prime Minister Mohammed Shia Al-Sudani has indicated oil companies in the region typically receive under their existing contracts.
The plan is part of a larger effort to resolve the long-standing disagreement between the central government in Baghdad and the Kurdish authorities over control and revenue distribution from oil production in northern Iraq. The impasse has disrupted oil exports, which were previously transported via a pipeline to the Mediterranean port of Ceyhan in Turkey. The halt of this vital pipeline has kept around 500,000 barrels per day of oil from reaching global markets, exacerbating both local and international energy supply concerns.
Despite the breakthrough in parliament, the full resumption of oil exports remains uncertain, as the situation is further complicated by Iraq’s commitments under the OPEC+ agreement. As part of the OPEC+ deal, Iraq is required to reduce its crude output, but it has struggled to adhere to these promised cutbacks, creating a potential dilemma for the country. With Iraq seeking to bolster its economy, which has been severely impacted by years of conflict and economic instability, increasing oil revenues through exports from Kurdistan has become a critical priority.
The dispute between Baghdad and the Kurdish authorities first escalated in March 2023 after Turkey halted the oil pipeline due to an arbitration court ruling that ordered Ankara to pay Iraq $1.5 billion in damages. While Turkey initially claimed that the shutdown was necessitated by repairs following two massive earthquakes in February 2023, it later stated that the pipeline was ready for operation and that it was up to Iraq to resume oil flows. However, Iraq, which had been pressing for greater control over the Kurdish oil sector, refused to resume the flow, and this has delayed any potential resolution.
The federal government and the oil companies operating in the region, such as DNO ASA, Genel Energy Plc, and Gulf Keystone Petroleum Ltd., have each blamed the other for the delay in restarting oil exports. The standoff has led to mounting frustration among stakeholders, as oil revenues are vital to Iraq’s economy, and the lack of a resolution has been a major setback in efforts to stabilise and rebuild the country’s oil sector.
The Kurdish region, which controls a significant portion of Iraq’s oil reserves, has long sought greater autonomy over its oil revenues. The region has often defied Baghdad’s attempts to assert control over its oil sector, creating tensions between the two governments. The federal government in Baghdad, on the other hand, insists that all oil production must be managed and overseen centrally, and the Kurdish authorities must share their oil revenues with the rest of the country.
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The decision to increase payments to oil companies in Kurdistan is seen as a critical first step in bridging the gap between the two governments and potentially restarting oil exports. However, it is unlikely to be the end of the dispute. The Kurdish authorities have long pushed for a more favourable deal, and while Baghdad’s approval of this plan represents progress, a final resolution to the issues surrounding Kurdish oil production, revenue sharing, and control remains uncertain.
With global oil markets still feeling the impact of reduced supply from Iraq’s northern region, both Baghdad and the Kurdistan Regional Government are under increasing pressure to come to an agreement. For Iraq, the stakes are high—both in terms of restoring vital oil exports and meeting the needs of its population while navigating the complex geopolitics of the region. Whether the passage of this plan will be enough to resolve the conflict and reopen the pipeline remains to be seen, but it marks a crucial moment in Iraq’s oil sector and its broader economic recovery.
