RAYAN JUMAA HAMID
CIHAN UNIVERSITY–DUHOK – BUSINESS ADMINISTRATION DEPARTMENT

INTRODUCTION:

KURDISTAN’S OIL EXPORTS, LONG A VITAL ENGINE OF THE REGION’S ECONOMY, ARE ON THE BRINK OF RESUMPTION FOLLOWING A NEARLY TWO-YEAR SUSPENSION. ON MARCH 25, 2023, THE FLOW OF KURDISH CRUDE TO INTERNATIONAL MARKETS THROUGH TURKEY’S CIHAN PORT WAS HALTED DUE TO A RULING BY THE PARIS ARBITRATION COURT. THE RULING FAVORED IRAQ IN A LEGAL DISPUTE WITH TURKEY, FORCING ANKARA TO SUSPEND PIPELINE OPERATIONS. THIS SUDDEN HALT TRIGGERED MASSIVE ECONOMIC LOSSES, ESTIMATED AT $26 BILLION, AND FURTHER STRAINED RELATIONS .BETWEEN THE KURDISTAN REGIONAL GOVERNMENT (KRG) AND THE IRAQI FEDERAL GOVERNMENT

SINCE THEN, NEGOTIATIONS BETWEEN ERBIL AND BAGHDAD HAVE BEEN MARKED BY POLITICAL DEADLOCK, FINANCIAL DISPUTES, AND PRESSURE FROM INTERNATIONAL ENERGY FIRMS. HOWEVER, WITH NEW AGREEMENTS IN PLACE, THE LONG-AWAITED RESTART OF KURDISH OIL EXPORTS IS SET TO RESHAPE THE ECONOMIC AND GEOPOLITICAL LANDSCAPE OF THE MIDDLE EAST.

HISTORICAL BACKGROUND OF KURDISH OIL:

THE KURDISH OIL SECTOR HAS BEEN A POINT OF CONTENTION BETWEEN ERBIL AND BAGHDAD FOR DECADES. WHILE THE KURDISTAN REGION HAS INDEPENDENTLY SIGNED CONTRACTS WITH INTERNATIONAL COMPANIES SINCE THE EARLY 2000S, BAGHDAD HAS CONSISTENTLY OPPOSED THESE DEALS, CITING CONSTITUTIONAL AUTHORITY OVER NATIONAL OIL RESOURCES.
IN 2017, AMID THE PUSH FOR KURDISH INDEPENDENCE, GLOBAL ENERGY GIANTS SUCH AS EXXONMOBIL AND CHEVRON WITHDREW FROM SEVERAL FIELDS IN THE KURDISTAN REGION. HOWEVER, RUSSIA’S ROSNEFT AND GAZPROM STEPPED IN, INVESTING BILLIONS OF DOLLARS TO EXPAND THEIR INFLUENCE IN THE REGION’S ENERGY SECTOR. BY 2018, ROSNEFT HAD LOANED THE KRG $3.5 BILLION AND SECURED CONTRACTS FOR FIVE OIL BLOCKS, STRENGTHENING RUSSIA’S FOOTHOLD IN KURDISH ENERGY MARKETS.
THE MOST SEVERE DISRUPTION CAME ON MARCH 25, 2023, WHEN AN INTERNATIONAL ARBITRATION RULING HALTED KURDISH OIL EXPORTS VIA TURKEY. THIS DECISION FOLLOWED A LONG-STANDING DISPUTE BETWEEN IRAQ AND TURKEY, WHEREIN BAGHDAD ARGUED THAT TURKEY HAD VIOLATED A 1973 OIL TRANSIT AGREEMENT BY ALLOWING KURDISTAN TO EXPORT CRUDE INDEPENDENTLY. THE RULING FORCED THE CLOSURE OF THE CIHAN PIPELINE, CUTTING OFF THE KURDISTAN REGION’S MAIN OIL REVENUE STREAM AND PLUNGING BOTH ERBIL AND BAGHDAD INTO FINANCIAL UNCERTAINTY.
ADDITIONALLY, BEFORE THIS CRITICAL DATE, ROSNEFT HAD PROVIDED SIGNIFICANT FINANCIAL SUPPORT TO THE KRG, REINFORCING ITS ROLE AS A DOMINANT FOREIGN PLAYER IN THE REGION’S OIL INDUSTRY. THESE INVESTMENTS, AMOUNTING TO BILLIONS, WERE MEANT TO STRENGTHEN KURDISTAN’S ECONOMIC INDEPENDENCE AND ENERGY SECTOR DEVELOPMENT, BUT THE 2023 SHUTDOWN DISRUPTED THESE PLANS.

THE IMPORTANCE OF CIHAN PORT:

THE CIHAN PORT SERVES AS KURDISTAN’S GATEWAY TO GLOBAL MARKETS, MAKING IT A LINCHPIN FOR REGIONAL ENERGY TRADE. SINCE THE MARCH 2023 SHUTDOWN, THE IRAQI MINISTRY OF OIL HAS WORKED TOWARD REOPENING THE EXPORT ROUTE, BUT NEGOTIATIONS HAVE BEEN STALLED BY DISAGREEMENTS OVER FINANCIAL ENTITLEMENTS AND EXPORT QUOTAS. THE IRAQI GOVERNMENT INSISTS THAT ALL OIL REVENUES MUST BE CHANNELED THROUGH THE STATE ORGANIZATION FOR MARKETING OF OIL (SOMO), WHILE THE KRG SEEKS TO MAINTAIN SOME LEVEL OF FINANCIAL AUTONOMY.

ECONOMIC IMPACT ON KURDISTAN AND IRAQ:

THE ECONOMIC TOLL OF THE EXPORT SUSPENSION HAS BEEN STAGGERING. WITH THE REGION PRODUCING APPROXIMATELY 300,000 BARRELS PER DAY (BPD), THE REVENUE LOSSES HAVE BEEN CRIPPLING. BEFORE THE SHUTDOWN, KURDISTAN’S OIL ACCOUNTED FOR A SIGNIFICANT PORTION OF IRAQ’S OVERALL EXPORTS, AND THE HALT DEPRIVED THE KRG OF CRUCIAL FUNDING TO PAY GOVERNMENT SALARIES AND SUSTAIN PUBLIC SERVICES.
NOW, AS NEGOTIATIONS MOVE TOWARD A RESOLUTION, INITIAL EXPORT LEVELS ARE EXPECTED TO RESUME AT 185,000 BPD, GRADUALLY INCREASING TO 300,000–325,000 BPD AS PER THE FEDERAL BUDGET LAW. THE AGREED-UPON PAYMENT STRUCTURE INCLUDES A $16 PER BARREL RATE, DOUBLE THE PREVIOUS COMPENSATION, TO HELP THE KRG RECOVER FINANCIALLY.
THIS $16 PER BARREL PAYMENT FOR TRANSPORT AND EXRACTION REPRESENTS A CRITICAL SHIFT IN FINANCIAL ARRANGEMENTS, ENSURING THAT OIL COMPANIES AND THE KRG RECEIVE ADEQUATE COMPENSATION AMID NEW REGULATORY FRAMEWORKS IMPOSED BY BAGHDAD. HOWEVER, OIL FIRMS OPERATING IN KURDISTAN CONTINUE TO DEMAND THE SETTLEMENT OF $1 BILLION IN OUTSTANDING DEBTS, ADDING ANOTHER LAYER OF COMPLEXITY TO THE FINANCIAL NEGOTIATIONS.

REGIONAL AND GLOBAL ECONOMIC EFFECT:

THE IMPACT OF KURDISTAN’S OIL EXTENDS FAR BEYOND IRAQ. THE REGION’S EXPORTS HAVE BEEN A CRITICAL PART OF GLOBAL SUPPLY CHAINS, PARTICULARLY IN EUROPEAN MARKETS. THE REOPENING OF THE CIHAN PIPELINE WILL HELP STABILIZE OIL PRICES BY ALIGNING PRODUCTION WITH OPEC QUOTAS AND INCREASING SUPPLY TO MEET INTERNATIONAL ENERGY DEMANDS.
MOREOVER, THE INVOLVEMENT OF FOREIGN PLAYERS—SUCH AS RUSSIA, TURKEY, AND WESTERN ENERGY FIRMS—HAS TRANSFORMED KURDISH OIL INTO A GEOPOLITICAL BARGAINING TOOL. RUSSIA, IN PARTICULAR, HAS LEVERAGED ITS INFLUENCE IN THE KURDISTAN REGION TO SECURE STRATEGIC ENERGY ASSETS, FILLING THE VACUUM LEFT BY AMERICAN OIL COMPANIES THAT EXITED THE REGION YEARS EARLIER.

FUTURE PROSPECTS AND CHALLENGES:

WHILE THE RESUMPTION OF EXPORTS MARKS A POSITIVE SHIFT, SEVERAL CHALLENGES REMAIN:

LEGAL DISPUTES: THE ONGOING FRICTION BETWEEN ERBIL AND BAGHDAD OVER OIL REVENUE MANAGEMENT CONTINUES TO POSE A RISK TO LONG-TERM STABILITY.

FINANCIAL CONSTRAINTS: INTERNATIONAL OIL COMPANIES ARE DEMANDING THE SETTLEMENT OF $1 BILLION IN OUTSTANDING DEBTS, A CONDITION BAGHDAD HAS YET TO FULLY ADDRESS.

INFRASTRUCTURE ISSUES: THE KURDISTAN REGION MUST MODERNIZE ITS AGING PIPELINE NETWORK TO MEET EXPORT DEMANDS EFFICIENTLY.
DESPITE THESE HURDLES, KURDISTAN’S NATURAL GAS SECTOR PRESENTS AN OPPORTUNITY FOR ECONOMIC DIVERSIFICATION. THE KHORMOR GAS FIELD, OPERATED BY DANA GAS, RECENTLY SURPASSED 500 MILLION CUBIC FEET PER DAY IN PRODUCTION, WITH AMBITIONS TO DOUBLE OUTPUT TO 1 BILLION CUBIC FEET PER DAY. EXPANDING THIS SECTOR COULD PROVIDE KURDISTAN WITH AN ALTERNATIVE REVENUE STREAM, REDUCING ITS OVER-RELIANCE ON CRUDE OIL.

OPPORTUNITIES FOR GROWTH:

THE RENEWED ENERGY SECTOR PRESENTS MULTIPLE AVENUES FOR GROWTH:
INCREASED EXPORT CAPACITY: WITH NEW AGREEMENTS IN PLACE, THE KURDISTAN REGION HAS THE POTENTIAL TO GRADUALLY BOOST EXPORTS TO OVER 400,000 BPD IN THE COMING YEARS.
FOREIGN INVESTMENT: COMPANIES LIKE ROSNEFT HAVE ALREADY POURED BILLIONS INTO KURDISH OIL, AND A STABILIZED ENERGY ENVIRONMENT COULD ATTRACT ADDITIONAL INVESTMENT.
GAS MARKET EXPANSION: STRENGTHENING THE NATURAL GAS INDUSTRY COULD POSITION KURDISTAN AS A KEY REGIONAL SUPPLIER, PARTICULARLY IN LIGHT OF EUROPE’S SHIFT AWAY FROM RUSSIAN GAS.

CONCLUSION:

THE MARCH 25, 2023 HALT OF KURDISTAN’S OIL EXPORTS MARKED ONE OF THE MOST SIGNIFICANT ECONOMIC DISRUPTIONS IN THE REGION’S MODERN HISTORY. HOWEVER, AS ERBIL AND BAGHDAD MOVE TOWARD A FRAGILE COMPROMISE, THE REOPENING OF THE CIHAN PORT SIGNALS A POTENTIAL TURNING POINT.
THE NEWLY ESTABLISHED $16 PER BARREL PAYMENT SYSTEM, ALONG WITH THE ONGOING NEGOTIATIONS OVER DEBT SETTLEMENTS, WILL DETERMINE HOW SUCCESSFULLY KURDISTAN’S ENERGY SECTOR REBOUNDS. WHILE CHALLENGES PERSIST, THE PROSPECTS FOR ECONOMIC RECOVERY AND REGIONAL INTEGRATION REMAIN STRONG.
THE KURDISTAN REGION NOW STANDS AT A CROSSROADS—WHETHER IT SECURES LONG-TERM STABILITY DEPENDS ON HOW EFFECTIVELY IT NAVIGATES ITS RELATIONSHIPS WITH BAGHDAD, FOREIGN INVESTORS, AND THE BROADER GLOBAL ENERGY MARKET.