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Iraq close to deal to restart oil exports from Kirkuk: Report

Oil from Kirkuk has been largely shut off from international markets for more than a year - Photo: Reuters
Iraq is close to securing a deal with the semi-autonomous Kurdistan Regional Government to restart oil exports from the disputed territory of Kirkuk after Washington ramped up pressure to get crude flowing as US sanctions hit Iran’s energy sales, a Financial Times report said.

The agreement, which could be reached as early as this month, could add up to 400,000 of barrels of oil a day to international supplies in a move partly designed to stop prices rising as newly-sanctioned Iranian crude exports drop.

Brent crude oil dropped below $70 a barrel on Friday for the first time since April, officially entering a bear market as losses since last month reached more than 20 per cent.

Crude prices have fallen sharply since hitting a four-year peak of $86 a barrel in early October, as traders have reassessed how much oil will be available in the market.

Brent, the international benchmark, lost more than 1.5 per cent on Friday to reach a low of $69.13 a barrel. Oil from Kirkuk has been largely shut off from international markets for more than a year, since the Iraqi federal government retook the territory from KRG control in October 2017. It remains a flashpoint between Baghdad and the Kurdish capital Erbil.

The only available export outlet for the oil from the giant oilfield, which was discovered in 1927, is the KRG’s own pipeline that runs to the northern border with Turkey then on to the Mediterranean port of Ceyhan.

Talks to restart exports have been continuing since last year but have accelerated in recent weeks, according to three people close to the discussions. The US is pushing allies to make every possible barrel of crude available as it seeks to reduce Iran’s crude exports without creating a damaging price spike.

US president Donald Trump said this week he was “driving” oil prices down and that he had granted waivers to some of Iran’s customers as he did not want to see “$100 a barrel or $150 a barrel” crude.

The US this week granted Iraq a waiver to continue trading certain goods with Iran, but is said to be looking for help on oil sales in return. 

On Thursday the US State Department said it did not comment on “deliberations occurring between or within other countries” but added “we recognise that Iraq could contribute to increased global oil output”.

Iraq’s oil ministry did not immediately respond to a request for comment. The talks have not concluded and could still drag on, two of the people cautioned, but all three sources indicated a deal was now the most likely outcome.

The additional oil from Kirkuk and neighbouring fields could be between 200,000 and 400,000 barrels a day, two sources said, depending on how much the federal Iraqi government is diverting to domestic refineries. It may take time to ramp up production as not all fields in the region are currently operating.

The KRG’s ministry of natural resources announced on Sunday that its pipeline to Turkey — which was bought by Russia’s state-backed Rosneft last year — had completed an upgrade to raise its capacity from 700,000 b/d to 1m b/d.

It pointedly said the extra capacity could carry both oil from “KRG producing fields” and “also be used by the federal government to export the currently stranded oil in Kirkuk and surrounding areas”.

A provisional agreement was reached earlier this year between the KRG and Iraq’s outgoing government, one of the people said, but it was not finalized before elections in May. It took until September to form a new government. The newly appointed ministers negotiating the deal are oil minister Thamer Ghadhban and finance minister Fuad Hussein, a Kurdish politician. Both were sworn in last month.

Hussein’s influence in Erbil is expected to help seal a deal for Kirkuk. He was backed by the Kurdistan region’s ruling KDP party for the role of presidency, but lost out to rival Barham Salih in an open parliamentary vote.

New Iraqi prime minister Adil Abdul Mahdi was the architect of a failed oil revenue-sharing agreement between Baghdad and Erbil, set out in the 2015 national budget law. Control of the oil-rich areas around Kirkuk has been a flashpoint between Iraqi Arabs and Kurds since the US occupation began in 2003 with both Baghdad and the KRG laying claim to the fields.

Federal troops fled the region in 2014 after Isis took nearby Mosul, handing de facto control to KRG forces that moved in to secure the area. Baghdad retook the land last year after an independence referendum, including in the Kirkuk area, was held by the KRG.

One sticking point in the export discussions centers on how much Baghdad should pay to utilize the KRG pipeline, with Rosneft looking to recoup some of the $3bn it has ploughed into the region as Moscow tried to increase its influence in the Middle East. People briefed on the negotiations said the talks were “sensitive” and any final deal was likely to be taken with inputs from the highest levels of government in Baghdad and Moscow.

Rosneft head Igor Sechin is a close ally of Russian president Vladimir Putin and has spearheaded the company’s push into Kurdistan at a time when Russian forces have taken on a decisive role in Syria’s civil war across from Iraq’s western border. Rosneft declined to comment.