Piped Kurdish crude exports via Turkey could resume in the coming days, 2½ years after they were halted, amid mounting expectations of a tripartite agreement between Erbil, Baghdad and international oil companies (IOCs) operating in the region, although top producer DNO remains cautious.

“The agreement has reached its final stages,” Ali Nizar al-Shatari, the head of Iraqi state oil marketer Somo, said on Tuesday, a day after officials were quoted by local media suggesting a deal had in fact been reached.

“We are now awaiting pumping procedures after finalizing all details,” he told the state-run Iraqi News Agency, adding that IOCs needed reassurances regarding the settlement of outstanding arrears payments. “[Somo] has worked to provide such assurances, and the government will announce the date soon after the official signing of this agreement.”

Kurdish Volumes

The agreement would see a minimum of 230,000 barrels per day of Kurdish oil being pumped to the Ceyhan terminal, all to be sold by Somo and marketed by a handful of trading firms, including Swiss-based Vitol, according to a well-placed Iraqi source, with another 50,000 b/d of Kurdish production to be refined locally.

A shipping agent monitoring loadings at Ceyhan told Energy Intelligence he had been informed that flows began on Tuesday morning but were halted due to minor technical problems at the Silopi pumping station inside Turkey. But these may have been test flows. A Mediterranean oil trader, formerly a buyer of Kurdish crude, said he hadn’t yet seen any offers.

It would not be the first time reports emerged of exports being set to resume that ultimately led nowhere, and the Iraqi source expressed doubt that a permanent agreement was about to be reached, even if a temporary one is struck, describing the issues at stake as “very complex.”

Outstanding Debts

He cited, in particular, the need for the oil ministry to approve the IOC contracts with the Kurdistan Regional Government, the need to resolve the KRG’s outstanding debts to the IOCs, which he said amounted to around $1 billion, and the need to guarantee future IOC payments as reasons to be skeptical.

DNO, the biggest operator in Iraqi Kurdistan in terms of production, echoed those doubts on Tuesday.

The Norwegian firm welcomed reports of an agreement on exports resuming and stressed its desire for that to happen — but only after “agreements that ensure payment surety for both past arrears and future exports based on the legal, economic and commercial terms” of its production sharing contracts with the KRG.

In its latest quarterly results, the company said it was owed $294.5 million by the KRG, excluding interest, mainly for non-payment relating to oil sales from its operations during the six-month period from October 2022, when the KRG was hit by serious financial difficulties.

“As the largest producer, the arrears owed to us by the KRG dwarf those of many of the others, which also means that our exposure to future payment risk is also substantially higher than any other company,” said DNO Executive Chairman Bijan Mossavar-Rahmani.

However, he added that his company had made proposals to the KRG to address the matter through “easy fixes that can be quickly agreed.”

US Pressure, Domestic Politics

The latest chapter in the tortuous history of federal Iraq’s relationship with its semi-autonomous Kurdish region comes at a pivotal time — with Prime Minister Mohammed Shia al-Sudani eying a second term in the Nov. 11 election, and the US increasing the pressure on Baghdad to help isolate Iran.

Since piped exports to Ceyhan were halted in 2023, much of the oil produced in Iraqi Kurdistan — including by US firm HKN Energy — has been sent to Iran by truck, while the US has twice in recent months sanctioned Iraqi individuals and entities for their alleged role in smuggling Iranian oil through Basrah.

Some Iraq experts argue that US pressure may at least partly explain the intensified efforts by the federal government to restart piped oil exports from the Kurdistan region, where the US has important strategic and commercial interests.

“Iraq is in an election year and taking very seriously the risk that the US could ramp up sanctions against Iraq, against its oil industry, if that oil industry is doing something that’s unacceptable,” Mike Knights, head of research at energy consultancy Horizon Engage, told Energy Intelligence.

“What’s unacceptable is that it’s possible for Iran to export its oil through Iraq, but it’s not possible for US investors to export oil through Iraq. That’s a step too far. And that’s the language that’s used in Congress, to keep [Iraq] focused on this issue,” he said.

“It does seem that we might have a breakthrough. I’m still holding my breath, because until I see cargoes sold from Ceyhan, and oil going to the appropriate escrow accounts, I can’t really believe it’s happening,” Knights added.