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The Oil Will Continue to Flow

By Padraig O’Hannelly.

The Kurdistan Regional Government (KRG) has upped the ante in the continuing dispute with Baghdad over oil export revenues.

In response to what it describes as “the Iraqi federal government … not sharing revenues in accordance with the Iraqi Constitution“, the KRG has threatened to take legal action against anyone who buys oil from the State Oil Marketing Organisation (SOMO).

This follows Baghdad’s earlier threat to take legal action against buyers of Kurdish crude, which is now flowing in greater volumes through the new pipeline to the Turkish port of Ceyhan; these threats appear to have frightened some potential buyers, with several tanker-loads of Kurdish crude still remaining unsold after weeks at sea.

It now seems probable that these issues will have to be resolved in the context of more autonomous or even fully independent Kurdistan, which many expect to follow a planned referendum in the region.

In the meantime, it seems unlikely that the potential for courtroom battles will stop the flow of oil from either Kurdistan or Southern Iraq to where it is needed.

(Flag image via Shutterstock)

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KRG Warns SOMO Customers

The Kurdistan Regional Government (KRG) threatened on Wednesday to take legal action against buyers of Iraqi oil unless the autonomous region is paid its share of revenue from any sales.

The full text of the statement from the KRG follows:

Under Article 112 of the Iraqi Constitution, the Iraqi federal government is legally required to distribute oil and gas revenues from present fields “in a fair manner in proportion to the population distribution in all parts of the country.”

Under Article 112, the KRG is entitled to 17% of all proceeds from oil sales by the Federal Oil Ministry and the State Oil Marketing Organisation (SOMO) (or any other division of the Iraqi federal government).

The KRG has the right, in circumstances where the Iraqi federal government is not sharing revenues in accordance with the Iraqi Constitution, to take such action as the KRG considers appropriate to obtain all entitlements the Iraqi federal government is required to pay to the KRG under the Iraqi Constitution. This right is reflected in Kurdistan law.

Since at least 2005, the Federal Oil Ministry has failed to comply with its constitutional and legal duties to the KRG, including under Article 112. The Federal Oil Ministry and SOMO continue to sell and to seek to sell oil, gas and other petroleum products to third parties, and to retain the full proceeds of such sales, all in violation of the KRG’s express constitutional and legal rights, and without the participation or approval of the KRG.

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Did Baghdad Reject Nechirvan’s Offer?

By John Lee.

Reuters has reported an unnamed Iraqi government source describing what is supposedly the real reason for the delay in exporting 100,000 bpd from the Kurdish Regional Government to Turkey.

As part of an interim deal , this oil was intended to be exported through the Iraqi state pipeline network.

The oil represents a quarter of what the KRG is supposed to export via the State Oil Marketing Company (SOMO) according to Baghdad. Last week, Kurdish PM Nechirvan Barzani (pictured) offered to export 100,000 bpd via SOMO as a gesture of “good will.”

Baghdad then informed the KRG that it was not able to receive the oil due to a severely damaged part of the pipeline, but sources have noted the oil could have been re-routed.

Instead, an anonymous government of Iraq source told Reuters that the real reason Baghdad would not receive the oil was that it had simply rejected Barzani’s offer.

A source remarked,

“We did not even sit to discuss their proposal. Why should we accept for the region to export 100,000 bpd when the federal budget says they should pump 400,000?”

If this is Baghdad’s official position, then difficult negotiations look set to remain difficult.

(Source: Reuters)





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Iraq’s Oil Income Surges

By John Lee.

Iraq’s oil income is set to jump in April, boosted by the continued discount on Basra Light as of February last year, and increased shipments to Asia.

February saw a record 3.6 million bpd in exports, setting a 3 decade record for Iraq.

According to Bloomberg, who interviewed analyst Alexander Poegl of JBC Energy GmbH in Vienna, Iraq’s short term outlook for oil exports is looking positive.

The report notes how despite Baghdad’s dispute with the KRG and attacks on northern oil infrastructure are hindering exports, the south is increasing export capacity and this is reassuring buyers, as Poegl highlighted:

“They should be on track for a good April. There’s great export capacity available and that will help boost confidence among customers that they’ll get their crude when they want it.”

(Source: Reuters)



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Shahristani Welcomes Barzani’s ‘Good Will’ Offer

By John Lee.

Deputy Prime Minister for Energy Hussein al-Shahristani (pictured) has welcomed Nechirvan Barzani’s offer of sending 100,000 bpd of oil through the State Oil Marketing Company.

According to Aswat al-Iraq, Barzani’s widely reported “good will” gesture was also welcomed by former oil minister Ibrahim Bahr al-Uloum who was positive about the offer.

Until the dispute is resolved, a million barrels of oil from the Kurdish region cannot be sold and is waiting in storage at the Turkish port of Ceyhan, and Kurdish local government officials have had their salaries withheld by Baghdad.

(Source: Aswat al-Iraq)


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KRG Offers 100,000 bpd Through SOMO

By John Lee.

Kurdish Regional Government PM Nechirvan Barzani (pictured) has offered to send 100,000 bpd of oil from the Kurdish region through the State Oil Marketing Company, Reuters reports.

The move is designed to partially appease Baghdad in the on going and tortuous dispute over oil revenues and exports to Turkey. Currently over 1 million barrels of oil are in storage at the Turkish port of Ceyhan, exported via the Kirkuk-Ceyhan pipeline which became operational in January.

Many analysts remain skeptical of a breakthrough any time soon, especially in the run up to (and aftermath of) April’s general elections. Kurdish  and Iraqi officials have also  acknowledged the dispute has been very difficult to resolve.

A statement from Barzani explained the rationale behind the decision:

“The negotiations with Baghdad on oil export and budgetary matters are ongoing. These negotiations have not yet resulted in any acceptable agreements. As a goodwill gesture the Kurdistan Regional Government (KRG) has offered to make a contribution to Iraqi oil pipeline exports to give the negotiations the maximum chance of success”.

(Source: Reuters)



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Iraq’s Oil Exports Hit Record High

By John Lee.

Surprising skeptics, the International Energy Agency has announced that Iraq’s oil exports have hit 3.6 million bpd, a record 30 year high, The Wall Street Journal reports.

Previously exports were falling due to export bottlenecks, bad weather and extensive work on infrastructure, while some northern areas such as Kirkuk were adversely affected by insecurity.

More recently, efforts to clear Iran-Iraq war era shipwrecks from the Shatt al Arab waterway caused some disruption, but experts are divided as to whether the recent rise represents Iraq meeting their export target of 3.4 million bpd for the year or whether February’s achievement is a blip.

Notably, challenges involving pumping and storage capacity at the Fao peninsula and ongoing infrastructure improvements represent near term challenges to Iraq’s export target for the year.

If these challenges are surpassable, Iraq’s oil exports can be expected to rise considerably.

(Source: WSJ)




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Erbil and Baghdad: One Step Forward?

By John Lee.

Just as some observers were saying the dispute looked intractable, Deputy Prime Minister for Energy Hussein al-Shahristani has announced a potentially big breakthrough in the ongoing saga of deal and no deal between Baghdad and the Kurdish Regional Government over oil exports to Turkey and oil revenues.

Reuters has reported that after intensive negotiations which have seen Kurdish oil exports stuck at the Turkish port of Ceyhan, the KRG has agreed to export through SOMO, the State Oil Marketing Organisation.

If such a deal survives where previous agreements have stumbled, this leaves an ongoing dispute about the 17% of oil revenue the KRG is supposed to receive from Baghdad, which the KRG complains is frequently reduced. Since January, Baghdad has been withholding salaries of civil servants in the KRG and threatening to sue Turkey.

Shahristani has hailed the deal with SOMO as a positive step forward, and salaries for KRG civil servants will supposedly be paid for the month of January. Shahristani has said February’s payments will go through when the SOMO deal comes into effect.

(Source: Reuters)


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