War Of Words Continues Re KRG Oil Exports

(MENAFN- Iraq Business News) By John Lee.

The Iraqi Oil Ministry has responded to criticism from the trade body representing international oil companies (IOCs) operating in Iraqi Kurdistan, as they mark the one-year anniversary of the closure of the Iraq-Turkey Pipeline (ITP) connecting northern Iraq with the Mediterranean port of Ceyhan.

Highlighting the economic cost of the pipeline closure, the Association of the petroleum industry of Kurdistan (APIKUR) accused Baghdad of, "economic strangling of the KRI ... through blocking oil exports and non-implementation of budget transfers."

It added that there has been "no real progress" to reopen the line, and that debts of over $1 billion from the KRG to APIKUR member companies remain unpaid.

In response, Baghdad's Ministry of Oil said that it is the federal government that is the most affected by the cessation of exports, and blamed Turkiye for the closure of the pipeline.

The Ministry also pointed to the Supreme Court ruling that says those oil contracts are not valid, and that the Ministry of Oil in Baghdad is responsible for oil exports.

Full statement from APIKUR:

Key Points:

• • The Iraq-Türkiye pipeline (ITP) has now been closed for one year

  • The ITP closure impacts International Oil Companies (IOCs) in the Kurdistan Region of Iraq (KRI), blocking 450,000 barrels per day of crude oil exports

  • Continued closure costs the Government of Iraq (GoI), Kurdistan Regional Government (KRG), IOCs, and the people of Iraq billions of dollars

As the 1-year mark for the halt of oil exports through ITP approaches, the Association of the Petroleum Industry of Kurdistan (APIKUR) provides an update on the reported status of the discussions around reopening the ITP, its efforts to restore full production and exports from Kurdistan, and the financial impacts on the Iraqi people and International Oil Companies (IOCs).

On March 25, 2023, oil exports through ITP were halted.

To date, neither APIKUR nor its members have seen any proposal from the GoI or KRG that would lead to a resumption of exports.

All eight APIKUR member companies remain committed to their contracts with the KRG and have been repeatedly assured by the KRG that the KRG, for its part, is fully committed to these contracts as well.

APIKUR continues to seek to engage with all relevant stakeholders to reach an agreement to resume exports via ITP.

"APIKUR remains focused on working with all stakeholders to restore full oil production and exports through the Iraq-Türkiye Pipeline," said Myles B. Caggins III, spokesman for APIKUR. "Each day the pipeline is closed, losses continue to mount and the people, economy, and investment reputation of Iraq suffers."

APIKUR's Assessment:

The GoI has not taken the required actions to reopen the ITP and enable oil exports from the Kurdistan Region of Iraq, despite Türkiye's announcement in October 2023 that the pipeline is operational and ready to export oil.

APIKUR notes that meetings were held in Baghdad on January 7-9, 2024, between representatives of the GoI, KRG, and IOCs - including representatives of several APIKUR member companies. Despite those meetings and the subsequent press on positive discussions between GoI and KRG, there has been no real progress to reopen the ITP.

APIKUR's efforts to resolve the impasse:

• • Holding multiple meetings with the KRG and GoI officials in Baghdad, Erbil, and Dubai

  • Consistently and openly communicating APIKUR members' conditions for restoring export production:

    • Any addendums must be agreed between the GoI, KRG, and APIKUR member companies

    • There must be payment surety for past and future oil exports

    • Prospective oil sale payments to APIKUR member companies must be remitted directly to those companies

    • The APIKUR member companies' current commercial terms and economic model must be maintained

  • Launching a public awareness campaign across Arabic, Kurdish, and Western media outlets

  • Independent of APIKUR, several individual IOCs have proposed solutions to the GoI and KRG

In addition, APIKUR has engaged home governments of member companies-with a particular focus on the United States government (USG)-due to its unique bilateral relationships with the GoI and KRG, including the $300 million direct investment by USG in the Kurdistan Region's energy sector.

APIKUR has conveyed to senior members of President Biden's administration and members of the U.S. Congress that the White House should not proceed with the planned visit of Iraqi Prime Minister Mohammad Shia Al-Sudani, on April 15, 2024, to Washington, DC unless:

• • ITP is reopened and allows oil produced in the KRI to be exported to international markets

  • IOCs (including APIKUR members) get surety of payment for past and future oil exports

  • The GoI fully implements the Iraqi federal budget for the KRG

APIKUR summary of the ongoing impact of the ITP closure:

Financial Impact:

• • Estimated revenue loss to Iraq of more than $11 billion, approximately $1 billion each month

  • APIKUR understands that while ITP remains unused, Iraq accrues more than $800,000 in daily penalties for failure to meet contractual throughput quotas in the ITP agreement

  • Debts of over $1 billion from the KRG to APIKUR member companies for oil produced between September 2022 and March 2023 remain unpaid

  • More than $400 million in annual investments paused by APIKUR members

  • IOC annual revenues reduced by nearly 60% as local sales have replaced exports to international markets

  • Economic strangling of the KRI by GoI through blocking oil exports and non-implementation of budget transfers

Impact on Global Oil and Energy Markets:

• • The halt of ITP exports puts pressure on a precariously balanced global energy market currently affected by Russian sanctions and shipping disruptions through the Red Sea

  • Iraq continues to receive sanctions waivers to import electricity from Iran, instead of funding its own energy infrastructure through additional oil exports

  • Since ITP closed, the U.S. has imported upwards of 250,000 bpd of oil and products from Southern Iraq, while the GoI prevents oil produced by U.S. companies in Kurdistan Region from being exported

Impact on Employment in Iraq's Kurdistan Region:

• • APIKUR member companies have laid off hundreds of directly-hired personnel, including both expats and locally-hired staff

  • The collapse in IOC investment has caused even greater staff reductions in oilfield-related service and products industries, including lodging and catering, maintenance, security, transportation, and construction companies

  • The lack of oil revenue and budget transfers from the GoI to KRG has led to severe delays in payment of civil servant salaries, including teachers and health service workers

Reputational Impact:

• • Placing the respect for contract sanctity in question risks a significant downturn in the desire for the global business community to invest in Iraq

  • Budget law and oil export impasse has exposed intra-Iraq political rifts

Full statement from the Ministry of Oil (translated):

The Federal Ministry of Oil has reviewed a statement issued by an entity calling itself the "Association of the Petroleum Industry of Kurdistan (APIKUR)" dated March 23, 2024, which contained distortions of facts and several inaccuracies. In this regard, the ministry would like to clarify the following points:

1. The halt of oil exports through the Iraqi-Turkish pipeline in March 2023 was due to a Turkish decision following an international arbitration ruling by the Paris Chamber of Commerce in favor of Iraq. The export did not stop - not even for a day - due to a federal Iraqi decision. After more than six months and significant negotiations led by this ministry with the Turkish side, the parties agreed to reopen the pipeline and address the technical issues resulting from its closure in the shortest possible time. The federal government is the biggest loser from the export halt for reasons related to sovereign oil policy and others.

2. One of the main reasons for the current export halt is the refusal of foreign companies operating in the Kurdistan Region of Iraq to officially hand over their production to the regional government for export in accordance with the effective federal budget law. This includes companies affiliated with the mentioned association. Export can be resumed shortly if these companies deliver the produced oil from the fields located in the region in accordance with the law.

3. The federal government and this ministry have made diligent efforts to overcome all obstacles to resume exports, as evidenced by the content of numerous official letters, meetings, and relevant decisions over the past year. The latest of these efforts was our letter numbered (480) dated March 18, 2024, which emphasized the necessity of delivering the produced oil in the region for export purposes. This ministry continues to insist on resuming exports through the Iraqi-Turkish pipeline as soon as possible, while adhering to the provisions of the constitution and the law.

4. Official correspondences issued by this ministry, including our aforementioned letter, referred to reports from OPEC and internationally recognized secondary sources confirming oil production in the region ranging from 200,000 to 225,000 barrels per day, without the knowledge or approval of this ministry. Non-compliance with the adopted federal oil policy puts Iraq's reputation and international obligations at risk, and the responsible parties for violations will face all legal consequences.

5. Contracts purportedly concluded between oil companies operating in the region and the Ministry of Natural Resources in the region have not been approved by the federal government or the federal Ministry of Oil at all, as they lack a sound constitutional and legal basis. This has been the stance of successive federal governments and the Ministry of Oil for over a decade, consistent with the Supreme Federal Court decision numbered (59/federal/2012 and its unified decision 110/federal/2019) dated February 15, 2022. There is no room for debate after the Supreme Federal Court issued its definitive and binding decision, except to comply with it.

6. This ministry has previously requested the Kurdistan Regional Government and the oil companies operating therein to provide full copies of all the mentioned contracts for the purpose of studying them and reaching new contracts in line with the constitution, the law, and the best practices followed by this ministry with major international companies. However, these contracts have not been submitted so far. Therefore, it is unreasonable for this ministry to demand compliance with contracts it has not seen or recognized, which is fundamentally inconsistent with binding judicial decisions.

7. The Federal General Budget Law No. 13 of 2023, which came into effect on January 1, 2023, included in Article 12/Second/B a provision to calculate production and transportation costs at a rate equal to what this ministry pays in its contracts, with the production cost averaging $6.9 per barrel. However, the companies operating in the region demand three times this amount (excluding transportation fees) as one of the conditions for resuming oil delivery. The parliament's call to adopt the Ministry of Oil's rate was due to the lack of access by the parliament and other federal authorities to the contracts, as mentioned earlier. Moreover, the costs demanded by the companies include what they call payment of previous debts worth billions of dollars, amounts that are unknown to the federal government and do not align with borrowing frameworks under the constitution and the prevailing laws.

8. It has been clarified repeatedly that this ministry cannot violate the General Budget Law and other applicable laws, in addition to highlighting a significant exaggeration in the mentioned costs in the previous paragraph. This ministry has officially reiterated its commitment to immediately resume exports in accordance with the law through the Iraqi-Turkish pipeline, while negotiating in parallel to reach a comprehensive and mutually acceptable settlement that serves the public interest. However, the companies continue to refrain from complying unless their illegal conditions are met, which is unacceptable under any circumstances.

9. The Iraqi government has received representatives of the oil companies operating in the region at the highest levels as a goodwill gesture to find acceptable legal solutions. This ministry has previously invited these companies to negotiation meetings to find fair solutions and has taken continuous legal actions against the mentioned companies to allow room for amicable settlements. However, the companies' stance remains inflexible and unchanged.

10. The mentioned association's statement included blatant interference in Iraq's internal and external sovereign affairs, which have no relation to the companies' operations. This constitutes an additional violation by the mentioned association and the represented companies and does not align with the principles of goodwill and the fundamentals of foreign investment.

11. The federal Ministry of Oil, under the government's directives, is committed to making every possible effort to resolve the disputes and resume exports through the Iraqi-Turkish pipeline in line with the constitution and the law. Foreign companies wishing to operate in Iraq must respect the country's sovereignty, laws

(Sources: APIKUR; Ministry of Oil)

MENAFN25032024000217011061ID1108020392