Iraq/KRG talks continue in bid to resume Kurdish crude exports

Quantum Commodity Intelligence – Frantic negotiations between Iraq and officials from the semi-autonomous Kurdistan Regional Government (KRG) continued Tuesday as both sides tried to find a breakthrough and resume crude exports from the northern Iraqi fields.

At stake is around 450,000 bpd of Kirkuk crude, which was halted over the weekend after Baghdad won a landmark international court decision, ruling Turkey had violated a bilateral treaty by facilitating independent pipeline flows from Kurdistan.

A KRG delegation reportedly flew to meet with authorities at the Federal Ministry of Oil on Sunday, after the ruling marked a major blow in its pursuit for autonomous control.

Around 375,000 bpd of crude underpins KRG's bid for autonomy but officials will now have to find a compromise with the Federal Iraqi government in order to resume Kirkuk crude exports, which are piped to the Turkish Mediterranean terminal of Ceyhan.    

By contrast, Baghdad exports just 75,000 bpd via Ceyhan, a small fraction of overall exports which are well in excess of 3 million bpd - the majority of it via the Middle East Gulf.

Most of the Kurdish oil stays in East Mediterranean, with Israel a major buyer of the Kirkuk grade and said to be scrambling for alternative supplies.

Overseas partners in the Kurdish oil fields were in the process of diverting oil into storage since the ruling, but this is largely operational storage with only capacity for a few days' worth of production.

Once tank tops are reached, production will have to be shut off, which can cause permanent damage to fields and be hugely expensive in the restart process.

The long-running dispute centres on KRG's plans to control oil production and sales from the Kurdish region of Northern Iraq, but the International Chamber of Commerce's International Court of Arbitration ruled in favour of Baghdad.

The region had already been struggling to maintain output after a number of international companies left last year, including TotalEnergies and several oil service firms.

More recently, key buyer Trafigura halted lifting KRG-controlled Kirkuk crude, which has been trading at steep discounts on the spot market since last year as a number of refiners shun the grade, fearing being blacklisted by Iraq's SOMO.   

The ICC court ruling has also opened up a dispute between Turkey and Iraq, amid claims and counterclaims for compensation over pipeline fees.