According to a new joint financial oversight report by Iraq and the KRG for the second quarter of 2024, companies operating in the KRG’s oilfields produced a total of 27,694,529 barrels of crude oil and condensates during the reporting period. This production generated $796 million in revenue, but expenses amounted to $846 million. During the same period, despite the ongoing suspension of oil exports, the KRG paid $176.918 million in pipeline rental fees over three months. Meanwhile, the region’s creditor obligations have reached an alarming $9.25 billion.

Context: A joint financial audit conducted by the Federal Board of Supreme Audit and the Kurdistan Regional Financial Supervision Bureau for the second quarter of 2024 has uncovered serious structural and fiscal deficiencies in the Kurdistan Region’s oil sector. The report, covering the months of April through June, provides a detailed assessment of oil production volumes, revenue streams, expenditure patterns, and compliance failures under conditions of suspended exports and rising debt.

According to the audit, companies operating in the Kurdistan Region’s oilfields produced a total of 27,694,529 barrels of crude oil and condensates during the reporting period. Of this amount, 22,000,312 barrels were sold domestically to refineries, while 1,314,295 barrels of condensate were sold directly by Dana Gas. An additional 4,146,092 barrels were transferred to refineries for domestic consumption. However, the audit noted a discrepancy of 233,830 barrels that could not be accounted for when comparing production figures with documented utilization. The average selling price for crude oil during the quarter was approximately $32 per barrel, generating $709.1 million in oil and gas revenues.

In total, the Kurdistan Region reported $796.5 million in revenue for the second quarter. This figure includes not only oil and gas sales but also $86.9 million from petroleum product sales and $483,253 in other operating revenues. The audit further detailed petroleum derivative sales: gasoline sales brought in $56.9 million from 81,858 tons; diesel generated $2.87 million from 91,197 tons; aviation fuel earned $2.09 million from 4,488 tons; LPG generated $1.13 million from 3,535 tons; and fuel oil brought in $23.8 million from 349,618 tons sold.

Despite these revenue levels, expenditures during the same period exceeded income by nearly $50 million. Total spending reached $846.4 million, with substantial allocations directed toward infrastructure and product-related costs. The Kurdistan Pipeline Company (KPC) received $176.9 million, of which $165 million was designated as capital expenditure and $11.9 million as operating costs. Petroleum product expenses totaled $265.5 million, including $31.1 million for refining, $3.6 million for transportation, $190.8 million for white oil purchases, and $39.9 million for warehouse construction.

An additional $5 million in general operating expenses was also recorded. These included costs for security services at oil installations, exchange rate losses, external audits by Deloitte, salaries for consultants, laboratory testing, office rent, banking fees, and expenses related to official delegations. The audit noted that many of these expenses were poorly documented or inconsistently categorized, with particular criticism directed at the inclusion of warehouse construction under operating expenses rather than capital outlays.

The report further revealed a deteriorating financial position. Debtor accounts totaled $171.5 million—$112.9 million owed by international oil company (IOC) partners and $58.5 million in domestic liabilities. Meanwhile, the Kurdistan Region’s creditor obligations reached a staggering $9.25 billion. This figure includes $473.7 million owed to Turkey’s TEC pipeline company, $1.004 billion to the Korean KNOC company, and $595.6 million to TEC and TPIC. Additionally, $3.66 billion in cash advances and $3.51 billion in other liabilities were recorded, indicating a pattern of escalating obligations with limited repayment capacity.

Beyond financial metrics, the report identified systemic governance failures that violate both Iraqi federal law and fundamental principles of fiscal transparency. Chief among these is the failure to deposit oil revenues into the official Central Bank of Iraq account (No. 300900), as required by the federal budget law. The KRG also refused to share copies of contracts with oil companies, citing the unwillingness of foreign operators to disclose terms—an explanation the auditors rejected as insufficient under Iraqi law.

The Ministry of Natural Resources was found to be operating without a standardized accounting system, instead relying solely on Microsoft Excel to manage billions of dollars in assets and liabilities. Of particular concern was Dana Gas’s independent sale of 1.3 million barrels of condensate, which were not recorded in official revenue accounts. Compounding governance concerns, 34 percent of all associated gas produced during this period was flared—burned off as waste—despite Iraq’s commitments to reduce gas flaring under international climate and energy agreements.

The audit also noted that oil companies and foreign personnel operating in the Kurdistan Region were exempted from income tax without a clear legal basis, undermining national taxation standards. Further irregularities were found in a contract signed between the KRG and Black WOLF Company for oil installation security: the Ministry signed the agreement in 2022, but the company’s signature was dated 2024, raising concerns about the legality and enforceability of the contract.

On the geopolitical front, the KRG failed to deliver the 400,000 barrels per day it had committed to transfer to the Iraqi Ministry of Oil due to the continued export freeze via Turkey’s Ceyhan port. Auditors confirmed that the pipeline was completely non-operational during the quarter, yet the KRG still paid $176.9 million in rental fees for its use—a decision that drew sharp scrutiny.

Banking records added to the audit’s concerns. The Ministry of Natural Resources maintained five bank accounts—four with RT Bank and one with Abu Dhabi Commercial Bank. These accounts held balances of 26.8 billion Iraqi dinars and $896,659 at RT Bank, and $8.3 million at Abu Dhabi Commercial Bank. However, the audit found inconsistencies in how transactions were recorded across accounts, hindering transparency and proper oversight.

Taken together, the findings from Q2 2024 highlight deep-rooted problems in the governance and financial management of the Kurdistan Region’s oil sector. With revenues falling short of expenditures and debt obligations spiraling, the report paints a picture of a sector that is not only fiscally unstable but also structurally opaque.