Tensions Between Iraq’s Government and KRG To Weigh On Oil Sector

Relations between Iraq's federal government and the Kurdistan region continue to fester as both parties are accusing the other side to not living up to the latest budget agreement, in which the KRG is required to hand over 400kbpd of its crude production to SOMO to receive its share of federal funding according to S&P Commodity Insights.

• So far, the KRG has only provided 50-60kbpd, given the closure to the pipeline to the Turkish port of Ceyhan. In August, Kurdish officials said the volumes were increased to 85kbpd.
• Iraqi government spokesperson Basim al-Awadi said in a statement on Twitter 8 September that Baghdad "has fully implemented its financial obligations" toward the Kurdistan region, including loans to pay salaries, while the KRG said it is the federal authorities who have not held up their end of the budget agreement.
• Further tensions could see Baghdad squeeze Erbil financially, which would then impact the KRG's ability to pay international oil companies operating in the region, which have already warned that political instability and the lingering Ceyhan closure could cause their future upstream investment to dry up.
• "Remaining investors are struggling with the lack of payment, as well as legal ambiguity over future treatment of their contracts," S&P Global Commodity Insights analysts said last month.
• The worsening dispute comes as talks between Turkey and Iraq over restarting crude exports from Ceyhan appear at a standstill and exports via the Turkish port remain suspended since 25 March.
• Turkey is reportedly seeking to reduce the fine and also renegotiate the pipeline agreement, which expires in 2025.
• Turkish President Recep Erdogan has been due to visit Baghdad for talks on the matter, but Arabic news outlet Asharq al-Awsat on 10 September reported that the trip had been postponed due to the standoff between Erbil and Baghdad.
• Earlier, Turkish Foreign Minister Hakan Fidan visited Baghdad and Erbil over late August to discuss the resumption of oil exports.