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KRG Pipeline Update

June 2, 2023

Oil production in Iraq’s Kurdistan region has experienced a significant decline due to the prolonged outage of the export pipeline to Turkey’s Ceyhan port. The pipeline shutdown, which has lasted almost two months, was initiated by Turkey following an arbitration ruling by the ICC. As a result, Iraq’s nationwide crude oil production has been adversely affected, with the Kurdistan Regional Government (KRG) incurring substantial financial losses. The pipeline outage originated from an ICC ruling that ordered Turkey to pay damages of US $1.5 billion to Iraq’s central government for unauthorized oil exports conducted by the KRG between 2014 and 2018. In response, Turkey halted the flow of Iraq’s 450,000 b/d of northern exports through the pipeline at the end of March.

This has led to a significant decline in oil production and export revenues to the KRG, estimated at over US $1.5 billion, as a result of the shutdown that began March 25th.  Efforts are underway to resolve the dispute and resume oil exports, as highlighted by the temporary agreement between the central government and the KRG, although we surmise this dispute is somehow tied to Turkey’s election cycle.  The continued loss of Kurdish crude loading in Ceyhan which appears will coincide with European refiners exiting maintenance, is likely to shift import requirements to alternative sources.   Kirkuk crude is considered a light-sour, which may allow US crude to act as a comparable substitute considering its similar API gravity.

Figure 1: KRG Pipeline                                         

Source: S&P Global, Reuters, US Institute of Peace