Despite the Iraqi oil minister repeatedly stating over the past two months that the resumption of KRG oil exports is imminent, significant gaps remain between the federal government, the Kurdistan Regional Government (KRG), and the international oil companies operating in the Kurdistan Region. Several key points remain unresolved.

The oil minister’s optimistic statements may be aimed at easing mounting pressure from the United States, which has been urging the Iraqi government to expedite the resumption of KRG oil exports and narrow its differences with Erbil. This may also explain why, despite Iraq incurring massive financial losses, there has been no breakthrough.

Iraq has been losing hundreds of millions of dollars due to several factors: it has had to scale back its own oil production to stay within its OPEC quota, compensating for the KRG’s halted output of 280,000–300,000 barrels per day. Meanwhile, the KRG is believed to be generating an estimated $11 million in daily revenue independently. In addition, Baghdad has continued paying KRG salaries, even though the federal budget law makes those payments conditional on the KRG delivering 400,000 barrels per day to the federal government—something it has not done.

Given all these factors—combined with growing U.S. pressure—it would appear more advantageous for Iraq to resume exports. Yet, that has not happened. The process remains stalled, largely due to unresolved issues. Below are the key remaining points of contention between the KRG and the federal government, based on details disclosed by Kurdish MP Soran Omar, a member of Iraq’s Oil and Gas Committee who has had access to the negotiations since the beginning:

1. Outstanding Debts to Oil Companies: The KRG has requested that the federal government repay a monthly obligation of $120 million to the international oil companies (IOCs) operating in the region. However, it is unclear for how many months this obligation would apply. The Iraqi government has so far refused, with the oil minister recently stating that the current amended budget law—which raised the production cost estimate for KRG oil to $16 per barrel—does not authorize retroactive payments or debt settlements.

2. Local Consumption Allocation: The KRG has asked Baghdad to allocate 115,000 barrels of oil per day for local consumption. However, in an official letter dated June 27, 2024, the KRG had previously stated that its local consumption was only 46,000 barrels per day. This sudden increase has raised concerns in Baghdad.

Moreover, the KRG wants the $16 per-barrel production cost to apply to this entire 115,000-barrel allocation. MP Soran Omar notes that, under Iraqi law, oil for domestic use is subsidized and sold at 450 Iraqi dinars per liter in federal-controlled areas. However, in KRG-controlled areas, the oil is reportedly provided at below-market prices to KDP-linked refineries such as Lanaz and KAR Group, which then sell the refined products at commercial, premium rates—resulting in fuel prices exceeding 900 dinars per liter.

There is a counterargument, however: Iraq’s total domestic consumption is roughly one million barrels per day. Based on population share, the KRG would be entitled to around 140,000 barrels. Omar argues that this claim would be valid only if the KRG agreed to use its allocation for subsidized fuel distribution, which it currently refuses.

3. Effective Production Cost Increases: If the Iraqi government agrees to cover the $16 production cost for the oil used for local consumption, it would raise the effective cost of the remaining exportable oil. With KRG’s total production capacity at 300,000 barrels per day and 115,000 reserved for local use, only 185,000 barrels would be available for export—meaning the production cost for these barrels would effectively increase to $27.

4. Export Volume Dispute: The federal government has conditionally accepted restarting exports at the level of 185,000 barrels per day, despite the budget law requiring 400,000 barrels. However, it still refuses to cover the production costs associated with the 115,000 barrels allocated for local consumption.

5. Pipeline Disagreement: Another point of contention concerns which pipeline should be used for export. The KRG is currently paying 76 billion Iraqi dinars per month for its pipeline to the Turkish border, co-owned by KAR Group and Russia’s Rosneft. Exporting through this pipeline costs $6 per barrel.

However, Baghdad has repaired the federal Kirkuk–Turkey pipeline and wants to use it instead, as it charges only $1.50 per barrel. The cost differential and control over the infrastructure are key issues in this dispute.

6. Shutdown of Unprofitable Oilfields: Six KRG oilfields have ceased production due to underdevelopment and because production costs now exceed the sale price, making them unprofitable. These fields include Sarta, Harir, Bejil, Bashir, Taq Taq, and Chya Sur. They are operated by companies such as DNO, PetOil, Genel Energy, Rosneft, and TTopko.

7. Lack of Access to Oil Contracts: A final major issue is Baghdad’s lack of access to the contracts signed between the KRG and international oil companies. The IOCs refuse to share these contracts with the federal government, fearing that Baghdad might use the information for legal action.

The oil companies and the KRG argue that, in addition to the $16 production cost, they are entitled to a share of profits as per their agreements. However, when Baghdad asks for the contracts to determine each company’s share, the companies refuse to submit them, offering only verbal descriptions. The federal government rejects this approach and insists on written documentation.

In sum, despite mounting financial losses and international pressure, Iraq and the KRG remain at an impasse due to fundamental disagreements over debt repayment, local consumption allocations, production cost coverage, export volumes, pipeline routes, the viability of certain oilfields, and transparency in contractual arrangements with international oil firms.

It remains to be seen whether political pressure will compel the Iraqi government and the KRG to quickly arrive at a compromise that would allow exports to resume.