Iraq-Turkey oil pipeline standoff continues ahead of budget law vote

An Iraqi Kurdish delegation will meet with the Iraqi finance minister in Baghdad on Jan. 27 as the dispute continues over the Iraqi budget law, on which hope hinges to resume crude exports through the Iraq-Turkey pipeline.

A vote is expected on Jan. 28 on the 2025 Iraqi budget law after efforts to amend the law were fumbled again on Jan. 23, when Iraq's council of representatives failed to vote on the amendment, according to a statement from the government in semiautonomous Iraqi Kurdistan.

The amendment, suggested by the Iraqi government in November, calls for the companies to receive $16/b for their production, but on Jan. 23, a spokesperson for the semiautonomous Iraqi Kurdistan region accused Iraqi lawmakers of removing the amendment from the proposed budget law.

"This proposal contradicts the previous decision of the federal Council of Ministers regarding the amendment of the budget law to restart oil exports from the Kurdistan Region," the KRG spokesperson said.

A federal Iraqi government spokesperson denied the claim. An Iraqi government spokesperson did not respond to a request for comment. A KRG spokesperson said an update would be provided after the meeting.

The $16/b price is less than what the international oil companies operating in Kurdistan had been seeking, but it is higher than the $6.90/b price set by the three-year federal budget passed in June 2023. The trade group representing the international oil companies tentatively welcomed the proposal, saying at the time that there "could be sufficient scope in the current wording to cover our previous requests related to commercial terms and surety of payment for past and future exports via the Iraq-Turkey Pipeline."

Once the law is enacted, federal authorities in Baghdad, the Kurdistan Regional Government and the oil companies can begin to negotiate further details, including owed payments and contract terms, but that will likely be a drawn-out affair with multiple competing interests.

Contract terms have been at the center of this longstanding debate, with Baghdad seeking to convert the production-sharing contracts the companies previously signed with the KRG into service contracts comparable to ones IOCs have signed with the federal government.

Those terms are less profitable for the companies, but a trade association representing oil companies in Kurdistan has said it is willing to consider modifying existing contracts if an agreement can be made between all parties.

Pipeline flows have been suspended since March 2023, when a Paris-based arbitration court said Ankara had violated the Iraq-Turkey pipeline agreement by allowing independent Kurdish sales, suspending roughly 400,000 b/d of medium sour Kurdish crude exports, as well as 75,000 b/d of Kirkuk crude, to the Mediterranean market.

Analysts have said that political parties and traders in Kurdistan profit heavily from the pipeline's closure, and there is little political will in Baghdad or in Kurdistan to resume exports.

Despite the pipeline's closure, IOCs in Kurdistan have ratcheted up production, finding a somewhat lucrative domestic market that has kept the companies generating cash and allows for middlemen and traders to profit. Regional production from the five publicly listed companies again ticked up in the third quarter of 2024, reaching 184,000 b/d, a 9.5% increase from the previous quarter.