Despite the KRG agreeing to a $16-per-barrel production cost and increasing U.S. pressure for exports to resume, and despite repeated promises by Iraq’s oil minister that exports would restart “in two days” or “next week,” nothing has materialized. International oil companies (IOCs) operating in the Kurdistan Region have issued one statement after another, making it clear: no resumption of pipeline exports is acceptable without first resolving the payment mechanism, settling arrears, and securing future compensation.

Here’s why IOCs are in no hurry to restart exports—and why this moment offers them maximum leverage.

1. The international oil companies have already weathered the most dangerous phase, which occurred immediately after KRG oil exports via pipeline were halted in March 2023, causing production to stop completely and company revenues to collapse.

2. Since then, all major companies operating in the region have rebounded and adopted, with oil production approaching the same levels as in 2022 (the last year of full KRG oil exports via pipeline). These companies are now generating reasonable profits that, although less than before the pipeline halt, still exceed what they would earn under the Iraqi arrangement.

3. Under Iraq’s proposed model, companies would receive a flat $16 per barrel to cover production and transportation costs. Crucially, this is not a profit-sharing structure. It is a capped reimbursement mechanism — one that strips out the upside for private producers.

Compare this with the current model. Gulf Keystone Petroleum (GKP), which operates the Shaikan oil field, reported in its 2024 results that average operating costs had fallen to $4.40 per barrel — down 21% from 2023. Their average realized price was $26.80 per barrel, meaning their gross margin is over $22. That is more than double what Baghdad proposes to pay in total.

ShaMaran Petroleum, which operates in both the Atrush and Sarsang fields, reported a 2024 average net price of $35.65 per barrel, with operating costs of $7.46 — again, a significantly more favorable margin than the Iraqi arrangement.

These realized prices reflect the actual amount received by the companies after KRG cuts and transport fees. For now, these sales — conducted through local refineries and intermediary traders — offer more financial certainty than what Baghdad can provide.

4. Some argue that the current reliance on domestic sales, much of it moved by truck, is inherently unstable. But the KRG and affiliated entities have managed this kind of oil marketing since the early 2000s. They have deep experience with informal logistics networks, trusted buyers, and regional export routes — including overland trade with Iran. Far from being a stopgap, this system is well-entrenched and, under the current terms, profitable.

5. The geopolitical reality now strongly favors the oil companies and KRG rather than the Iraqi government. The Trump administration has been pressuring the Iraqi government to reach a compromise and restart KRG oil exports via pipeline through Turkey.

6. These factors reduce any sense of urgency to restart pipeline exports under current terms—especially since companies receive payment upfront under the current unofficial arrangement. Meanwhile, Iraq maintains its position on a post-production payment system requiring companies to submit monthly invoices and accept a 30-60 day payment window.

7. Baghdad has also refused to settle debts for barrels delivered in late 2022 and early 2023 — crude that the KRG received but never paid for. These arrears remain a major sticking point, and companies have signaled that no agreement can move forward without their resolution.

From this perspective, international oil companies have little incentive to hurriedly restart oil exports via pipeline under the current arrangement—if anything, it would disadvantage them. What makes the situation even less appealing is that the production cost allowance is provisional, meaning an independent consulting company will assess production costs for each oil field, potentially resulting in even lower compensation for many operations.

Beyond the companies’ concerns, the KRG itself has minimal incentive to restart pipeline exports. Under the current arrangement, companies affiliated with the Kurdistan Democratic Party (KDP) and Patriotic Union of Kurdistan (PUK)—specifically those connected to the Barzani family—are generating substantial revenue. Much of the oil is sold at discounted rates to refineries such as KAR Group and Lanaz Refinery, which then resell at higher prices. In this arrangement, the PUK also generates significant revenue through transit fees, charging $600 for each tanker traveling to Sulaimani and an additional $1,400 at border crossings with Iran, where some oil is exported.

Under these circumstances, both international oil companies and politically-connected Kurdish companies are profiting.

While Baghdad secured a political victory with the international arbitration court’s ruling, which theoretically established its authority over KRG oil exports, in practical terms it has been a loss for Iraq. KRG oil exports effectively continue, albeit through different channels. Furthermore, while the Iraqi budget law stipulates that Erbil must deliver 400,000 barrels of oil per day, this is not happening—yet Baghdad continues to send KRG employee salaries.

Baghdad likely feels compelled to maintain this arrangement given the geopolitical challenges facing Iraq’s Shiite leadership, as their main regional ally, Iran, confronts existential threats from Trump and Israel. Additionally, Iraq continues paying a daily fine of to Turkey under the 1980s Iraq-Turkey agreement, which stipulates that if Iraqi oil exports are halted, Iraq must compensate Turkey for pipeline maintenance, amounting to million of dollars monthly.

Additionally, federally controlled Kirkuk oil exports have also been halted due to the KRG pipeline shutdown. Since Iraq is bound by OPEC+ production caps, KRG oil output is counted toward Iraq’s national quota—forcing Baghdad to cut an equivalent amount from its own production.

In effect, Iraq is paying daily fines, covering KRG salaries, and even reducing its own output to accommodate the KRG’s unofficial oil sales. Under the current arrangement, it is incurring significant losses on all fronts.

This situation risks reigniting the KRG salary issue if prolonged. However, given Baghdad’s current geopolitical vulnerabilities, they may show flexibility for now, particularly as they already fear the KRG’s lobbying efforts against them in the US. Ironically, the very KRG oil exports that Iraq halted via pipeline are now further enriching KDP leaders, providing them with more resources to fund lobbying against the Iraqi government.

This explains why the KRG is advancing demands such as 46,000 barrels daily for domestic consumption and claiming another 69,000 barrels for oil company entitlements. The KRG now states it can produce 300,000 barrels per day—not the 400,000 stipulated in the budget law—and wants Baghdad to pay for the entire amount, including the 115,000 barrels it retains. This arrangement particularly benefits companies affiliated with the KDP, potentially creating a triple cost burden on the Iraqi government. Given this favorable position, the KRG, in coordination with oil companies, also opposes appointment of an independent consultancy to assess production costs.

US pressure for KRG oil export resumption adds another dimension: negotiations are ongoing between Iraq, the KRG, and international oil companies, with US diplomats present. This indicates Washington is actively working to facilitate a compromise solution to expedite the restart of KRG oil exports. Within less than a month, both the US Secretary of State and National Security Advisor have engaged directly with Prime Minister Sudani, while US representatives have spoken with KRG President Barzani. The restart of oil exports appears to be a central theme in all these engagements.

The US strategy seems primarily aimed at countering Iran rather than directly intervening in Iraq-KRG relations. Currently, KRG oil is unofficially transported to Iran via tankers, and the US seeks to eliminate Iranian oil revenue while minimizing market disruption. A complete halt in exports would likely trigger severe destabilization in the KRG, particularly since its contracts with international oil companies grant the latter significant leverage—especially if revenues diminish.

If oil exports restart via pipeline under the current arrangement, Baghdad would be the primary beneficiary. However, Baghdad’s options are limited, and they are effectively cornered with few alternatives. It is unlikely that international oil companies and the KRG would squander such a favorable opportunity to impose their conditions rather than accept resumption on Baghdad’s terms. The Iraqi government needs this provisional period to: 1) Cover some of its expenses, particularly the funds it sends to Erbil, and 2) Buy time until conditions become more favorable—essentially, to survive.

For these reasons, the resumption of KRG oil exports via pipeline is unlikely without massive US pressure. However, given that a complete halt would cause enormous problems for the KRG—an entity that the US and Israel want to remain stable due to the geopolitical standoff with Iran (and for Israel, with Turkey as well)—the US will likely not allow the current arrangement to collapse even if official pipeline exports do not restart. The US may instead pressure the KRG to redirect oil exports via tanker to Turkey instead of Iran. Ultimately, US policy toward Iran will likely be the key determining factor in how this situation evolves.

So for now, the pipeline remains closed. But for those profiting under the new normal, there is no rush to turn the taps back on.