Masrour Barzani holds talks in Baghdad with Iraqi PM al-Kadhimi on oil disputes

Iraqi Prime Minister Mustafa al-Kadhimi (L) meets with Kurdistan region Premier Masrour Barzani in Baghdad

BAGHDAD,24.7.22 Iraq’s federal government in Baghdad and the autonomous Kurdistan region pledged Saturday to “increase dialogue” to ease a simmering oil dispute that has been playing out in the courts in recent months.

The announcement came during a rare visit to the Iraqi capital by the Kurdish region’s prime minister. Masrour Barzani, who had not visited Baghdad since 2019, met Iraqi Prime Minister Mustafa al-Kadhimi for wide-ranging talks.

An oil dispute that has been poisoning relations between the two sides, and threatening to harm Iraq’s lifeline oil industry according to analysts, was among the topics.

“It was agreed to increase dialogue between the federal ministry of oil and the ministry of natural resources in the Kurdistan region of Iraq to address the outstanding issues and continue working to reach common solutions,” a statement from Kadhimi’s office said.

“The two sides… emphasised the need to strengthen cooperation and joint coordination between the federal government and the regional government to attract investments, and maximise revenues,” it added.

The long-simmering dispute came to a head in February — at a time of political deadlock in Baghdad — when the federal supreme court ordered Kurdistan to hand over oil extracted from its territories to the federal authorities.

Iraq, the second largest producer in the Organization of the Petroleum Exporting Countries, sits on enormous reserves, and revenues from the sector feed 90 percent of the federal government budget.

It exports an average of 3.3 million barrels per day (bpd) of crude, while production in Kurdistan amounts to just over 450,000 bpd.

In a bid to defuse tensions, Kurdistan proposed setting up two companies specialised in oil exploration and marketing that would coordinate with Baghdad, a spokesperson for the regional government said earlier this month.

Baghdad has fought to regain control of output from fields in Kurdistan since the autonomous region began marketing oil independently more than a decade ago.

On February 22, 2022, Iraq’s Supreme court deemed an oil and gas law regulating the oil industry in Iraqi Kurdistan unconstitutional and demanded that Kurdish authorities hand over their crude supplies.

According to a court ruling, the Kurdish authorities in Erbil must hand over all crude from the KRG and nearby territories to Iraq’s federal government, which is represented by the oil ministry in Baghdad.

Oil contracts between the KRG and oil firms, foreign parties, and states were declared null and void by the court verdict. Exploration, extraction, export, and sale agreements are all included, according to the court.

The KRG has repeatedly rejected the federal court ruling. In 2007, the Kurdistan region adopted an oil and gas law, allowing it to manage and develop its own natural resources.

On April 2, the Iraqi oil ministry has asked for copies of all oil and gas contracts signed by the Kurdish administration since 2004, as well as information on the Kurdistan region’s hydrocarbon revenues, for the purpose of reviewing and amending them. Iraq’s federal government has instructed the KRG to transfer its oil and gas operations to a new company named Kurdistan Oil Company ahead of Baghdad’s takeover of the Kurdistan’s operations.

On May 7, 2022, Oil minister Ihsan Ismael said Iraq’s oil ministry would start implementing a February federal court ruling that deemed the legal foundations of the Kurdistan region’s oil and gas sector unconstitutional.

On May 12, INOC published an analysis detailing how the KRG’s production-sharing contracts are financially worse for both the government and foreign oil firms than federal Iraq’s own technical service contracts. According to the report, the KRG’s contracts with multinational corporations and the exportation of extracted oil and gas violate the Iraqi constitution as it deprives the federal government of control over the country’s oil and gas industry.

On May 15, Iraq’s state-owned North Oil (NOC) claimed that KRG forces took control of some oil wells in the disputed region of Kirkuk but the KRG denied the allegation, claiming it was designed to create chaos.

On May 19, Iraq has asked oil and gas firms operating in Kurdistan region to sign new contracts with state-owned marketer SOMO rather than the Kurdistan Regional Government (KRG). The Iraqi oil ministry appointed international law firm Cleary Gottlieb Steen and Hamilton to approach some oil and gas firms operating in the Kurdistan region to “initiate discussions to bring their operations into line with applicable Iraqi law.”

On May 26, 2022, Iraqi Kurdistan region’s Minister of Natural Resources, Kamal Atroshi, has resigned from his post.

On June 18, 2022, the KRG said that it is working to establish two oil firms KOMO and KROC, the latest move in the battle between Erbil and Baghdad to control the oil sector in Kurdistan. The KRG’s new oil firm KROC would specialise in oil exploration, while the second – KOMO – would focus on oil exports and marketing from Kurdistan region.

On June 26, 2022, U.S. energy company Schlumberger has said it will not apply without Baghdad’s consent for any tenders in the oil and gas sector of Iraq’s Kurdistan region, according to a letter sent to the Iraqi oil minister.

In July 2022, a commercial court in the Iraqi capital annulled contracts between the Kurds and foreign firms, after the oil ministry in Baghdad filed a judicial complaint.

On July 5, 2022, U.S. oilfield services companies Schlumberger, Baker Hughes and Halliburton have pledged to comply with a federal supreme court ruling and withdraw from Iraq’s Kurdistan region, the country’s oil ministry said in Baghdad.

The Kurdish administration which called itself a Kurdistan Regional Government KRG is not transparent in disclosing the exact amount of oil revenue to the public and to Kurdistan parliament, according to observers and Kurdish politicians.

Many Kurdish politicians, observers, and the ordinary people believe that many of Iraqi Kurdistan’s oil industry projects and deals are conducted in a non-transparent way. Some have even described them as secretive.

Iraqi Kurdistan region considered as the most corrupted part of Iraq. According to watchdogs, Kurdish lawmakers and leaked documents billions of dollars are missing from oil revenues.

According to local and international analysts and watchdogs the lack of control mechanisms in Iraqi Kurdistan makes it a paradise for illegal financial activities by the Kurdish ruling leaders.

Iraqi Kurdistan-ruling Barzani clan, known as the “Kurdish oligarchs”, have been routinely accused by critics and observers of neptunism and amassing huge wealth from oil business for the family instead of serving the population.

Massoud Barzani, remains the most powerful leader in the shadow according to analysts. Massoud’s son Masrour is the Kurdistan region’s prime minister and his nephew Nechirvan Barzani is the president of Kurdistan.