Iraq to submit updated OPEC+ compensation plan ahead of Kurdish pipeline restart

Iraq has said it will submit an updated OPEC+ compensation plan as exports through the long-halted Iraq-Turkey pipeline in the semi-autonomous Iraqi Kurdistan region are expected to resume soon.

Momentum to reopen the pipeline has gathered steam after the US reportedly ordered Iraq to resume exports or risk the threat of sanctions as US President Donald Trump looks to resume his "maximum pressure" campaign on Iran. A resumption of Kurdish crude exports could potentially help offset any loss of Iranian barrels and prevent a price spike.

But Iraq has chronically over-committed on its OPEC+ quota, and reopening the pipeline that has historically carried up to 400,000 b/d of crude to the Mediterranean market could impact Baghdad's ability to keep production in line with its quota of 4 million b/d. Iraq pumped 4.06 million b/d in January, according to the latest Platts OPEC+ Survey from S&P Global Energy.

In a Feb. 24 phone call with Saudi Arabian Energy Minister Prince Abdulaziz bin Salman, Russian Deputy Prime Minister Alexander Novak, and OPEC Secretary General Haitham al-Ghais, Iraq reaffirmed its commitment to sticking to its OPEC output limit, while taking into account developments around the Iraq-Turkey pipeline, according to a statement from Iraq's oil ministry.

As the Kurdistan Regional Government and federal Iraq move closer to a deal to resume crude flows through the pipeline, state oil marketer SOMO will receive 185,000 b/d of Kurdistan oil in the first stage, Iraq's deputy minister for extraction affairs Bassem Muhammad Khadir said Feb. 23, according to state news agency INA.

The current amount of crude available in Kurdistan is 300,000 b/d, with 115,000 b/d allocated for local consumption, he said.

The pipeline has been shuttered since March 2023, with Khadir saying Kurdish oil fields will need to be rehabilitated to reach full production capacity, so it will take time to achieve 400,000 b/d of exports, which is the minimum production rate for the region under the federal budget law. A source from an international oil company (IOC) that operates in Kurdistan said rehabilitation would not be needed to reach that production level.

Challenges, concerns for IOCs

A spokesperson from Norway's DNO, another IOC, said that the company's fields in Kurdistan are in "shipshape and our current wells producing at capacity," but investment in new wells is needed.

"Investment in drilling new wells ceased following the export shutdown and continuing uncertainties over what comes next. The companies need surety of payments for their past and future exports if they are to participate in new export arrangements and to drill, drill, drill," the spokesperson said.

On Feb. 5, a senior SOMO official told Platts, part of S&P Global Energy, that Baghdad would likely sacrifice KRG output in favor of Asia-bound southern production, depending on market conditions, in order to remain within its OPEC quota.

As the KRG and Baghdad agreed Feb. 22 to resume exports, they have appointed a joint technical team to examine the pipeline. Turkey's state energy company Botas said in its monthly energy flow data Feb. 3 that 29,000 barrels were transported via the pipeline in December but did not explain how or why the flow occurred.

The federal oil ministry has reached out to Turkey to assess their readiness to resume exports, Khadir said.

Iraq is waiting "for their answer in the next 24 hours," according to the INA statement. It is unclear if agreements with the Turkish side have been hammered out, and an analyst told Platts previously that the transit fee paid to Turkey is one issue that must be addressed.

Previous longstanding stumbling blocks have been overcome, with Iraqi lawmakers passing a budget amendment Feb. 2 that guarantees a payment of $16/b by the federal finance ministry to the KRG for crude produced in Kurdistan.

IOCs operating in the region said it was a good first step and have welcomed subsequent developments. However, they still have demands they want addressed, including unresolved debt payments to the companies and the need for clear payment guarantees. The Kurdish government has racked up extensive debt owed to IOCs over the last few years.

"We seek written sales and lifting agreements, with the government of Iraq and Kurdistan Regional Government, that provide payment transparency and surety without political interference," the Association of the Petroleum Industry of Kurdistan (APIKUR) said in a Feb. 22 statement.

APIKUR members have previously stated they are ready to resume exports "after agreements are reached that uphold our member companies' existing contractual, commercial and economic terms," it said. The association represents the majority of IOCs in Kurdistan.