The restart of a key Iraqi oil pipeline, which exports oil to the Turkish port of Ceyhan and has been shut for over a year, is being held up by disagreements over costs, Iraqi Prime Minister Mohammed S. Al Sudani said, according to a report on Tuesday.
Baghdad hasn’t been able to agree on how much to pay international oil companies operating in the country’s northern semi-autonomous region for their production.
The federal administration’s budget allows it to pay $8 for every barrel of oil produced, while contracts with the Kurdistan Regional Government (KRG) give the firms $26, Al Sudani said in an interview with Bloomberg. The impasse has hit output from the region and delayed the pipeline’s resumption.
"We have to look at how to balance those issues," he said in an interview with Bloomberg TV in Baghdad on Sunday. "Do we look at the budget to see what we can do or we try and look at the prices?"
Traffic via the Iraq-Türkiye oil pipeline, which once handled about 0.5% of global oil supply, has been halted, stuck in legal and financial limbo, since March 2023.
The sharing of oil revenues between Iraq's federal government and KRG in the north has been a cause of tensions between the two sides.
Earlier in May this year, Al Sudani was quoted by Bloomberg as saying the government was eager to resolve an impasse over prices.
The stall in oil deliveries, however, is inadvertently helping the country get closer to its OPEC production limit.
The OPEC+ countries coalition, which includes leading oil exporters including Russia, announced voluntary cuts to production in April and November last year, with eight member countries earlier this month emphasizing their collective resolve to ensure full compliance with the voluntary production adjustments.
Due to its large market share, OPEC's decisions can affect global oil prices. Its members meet regularly to decide how much oil to sell on global markets.
Iraq along with Kazakhstan was urged by other members "to achieve full conformity and compensate for the overproduced volumes since January 2024," OPEC said in a statement earlier this month.
The closure of the pipeline that can transport almost half a million barrels a day of oil from KRG to the Turkish coast is resulting in billions of dollars of lost revenue.
Yet, restarting it would pose a dilemma for Iraq, which has failed to adhere to its OPEC+ output limit amid pressing financial needs, but has repeatedly said it will compensate for overproducing. The failure to meet the limits has been a point of contention with OPEC+ de facto leader Saudi Arabia.
"We are committed to abide by the OPEC decisions and to preserve the price of oil in order to balance the interest of the users and the producers," Al Sudani said.
The Iraq-Türkiye pipeline has been offline since March last year when Ankara halted flows following an arbitration ruling by the International Chamber of Commerce (ICC).
The ICC ordered Ankara to pay Baghdad damages of $1.5 billion over what it said were unauthorized exports by the KRG between 2014 and 2018.
Türkiye, on the other hand, said the ICC had recognized most of Ankara's demands. It said last October that it was ready for operations and it was up to Iraq to resume flows.
In the interview with Bloomberg Al Sudani also said that the recent drop in oil to around $72 a barrel, the lowest in three years, emphasized the need for the country – which has experienced wars in recent decades – to diversify its economy.
Iraq is OPEC’s biggest oil producer after Saudi Arabia and derives the vast bulk of its revenue from exporting the commodity.
Al Sudani said his administration was looking to invest around 40% of petroleum revenues in Iraq to boost the non-oil sector.
He added that a planned trade corridor stretching from Iraq’s southern Basra province to Türkiye and then onto Europe was "a dream" for his country. He’s looking to Gulf states to help fund the $17 billion project.