Iraq's Kurdish region says oil output cuts hinge on federal payments

Dubai — Iraq's semi-autonomous Kurdish region will trim its output in line with OPEC+ cuts provided the federal government pays its dues to Erbil, a Kurdistan Regional Government spokesperson said Oct. 22 after Iraq's oil minister said the region had failed to comply with output curbs.

"The KRG has committed to reducing its crude oil production in line with the decisions of the OPEC plus meetings, at rates consistent with the quantities of oil produced from its fields," Jotiar Adil said in a statement. "KRG has no objection to the continuation of production reduction in accordance with the fair rate that has been agreed, provided that the federal government is fully committed to covering the dues and expenses KRG loses as a result of reduced production levels."

The federal government has reduced monthly public salary payments to the KRG, which has not received dues for May through July at a time when there is a "significant decrease in non-oil revenues due to the repercussions" of the pandemic, he added.

Oil minister Ihsan Ismaael said Oct. 20 the federal government has not seen a "real" contribution from the Kurdish region to OPEC+ cuts that the federal government has had to shoulder.

In the Kurdish region, "they didn't follow the OPEC+ cuts," Ismaael told the Iraq Petroleum virtual conference. "They have internal challenges."

OPEC's second largest oil producer has been a laggard in sticking its OPEC+ quota for most of this year as it struggles with its finances and officials from the federal government have blamed the KRG for failing to contribute their share of the cuts.

September exports

In September, Kurdish oil exports rose 5.6% month on month to 450,000 b/d, according to a shipping report seen by S&P Global Platts. Federal exports rose to 2.613 million b/d from 2.597 million b/d in August, oil ministry figures show.

Baghdad and Erbil were supposed to share the OPEC + production cuts proportionally, but SOMO figures released Sept. 10 show the KRG achieved just 79% compliance with its quota in August, while the federal government hit 102%.

Iraq lowered its crude oil output in August to 3.578 million b/d, SOMO figures showed, but remained above the 3.404 million b/d it had pledged to hold production to under the OPEC+ supply accord during that month.

It has pledged to make up for overproduction in May through July by implementing compensation cuts up to December. The OPEC producer's 698,000 b/d of catch-up cuts will be divided into 203,000 b/d in September and 165,000 b/d in October, November and December, according to an internal document seen by Platts.