ERBIL, Kurdistan Region - The head of Iraq’s State Oil Marketing Organization (SOMO) said on Monday that they are “working to implement the agreed-upon terms” to resume the Kurdistan Region’s long-halted oil exports, with exports expected to restart “soon.”
“I am optimistic about the positive measures and discussions taking place. Everyone is working in this direction, and this is cause for optimism. All that remains is implementation, so we are optimistic that it will be achieved soon,” Ali Nizar Faiq, director general of SOMO, told Rudaw.
Oil companies operating in the Kurdistan Region are demanding a tripartite signed agreement that includes the federal oil ministry and the Kurdistan Region's natural resources ministry to guarantee the payment of their dues.
Faiq stressed that SOMO is ready and “working to implement the agreed-upon terms” to resume the oil exports, stressing that the budget law and its amendments are the “strongest” guarantee for the payment of the companies’ dues.
Oil exports from the Kurdistan Region through the Iraq-Turkey pipeline have been suspended since March 2023, when a Paris-based arbitration court ruled in favor of Baghdad against Ankara, saying the latter had violated a 1973 pipeline agreement by allowing Erbil to begin exporting oil independently in 2014.
The suspension has incurred $28 billion in lost revenue so far, according to the Kurdistan Regional Government (KRG).
The following is the full transcript of the interview with Ali Nizar Faiq:
Rudaw: There was much talk about reaching an agreement between Baghdad and Erbil, but this was followed by reports indicating that no agreement had been reached. Where do we stand now regarding the export of the Kurdistan Region's oil through SOMO?
Ali Nizar Faiq: The question is important, and the issue is even more important. We are directly linked to the issue through the budget law and its amendments. The law stipulates the need to begin pumping the Kurdistan Region's oil in two directions: the first is exporting oil through the oil marketing company that we manage, and the other is domestic consumption. Discussions began based on this foundation to establish the appropriate mechanism for implementing this law and its amendments, including selecting an international consultant and determining its work methodology. Furthermore, the Ministry of Oil appointed Wood Mackenzie as a global consultant. Discussions were also held with the Kurdistan Region's Ministry of Natural Resources, which is responsible for its contracts with producing companies within the Region and the rights and obligations of these companies under the contracts signed with them.
These discussions resulted in SOMO completing all its contracts with the companies purchasing Kurdistan Region oil. We are optimistic that these quantities will arrive and flow into the tanks at the Turkish port of Ceyhan, after which loading will begin normally.
So, based on the agreement, is the buyer currently ready?
Yes. The companies purchasing Kurdistan Region oil are ready. It is Iraqi oil, flowing through Iraqi-Turkish pipelines in accordance with the existing agreement with the Turkish side. The federal Ministry of Oil has made significant efforts in this regard, as has the Kurdistan Region's Ministry of Natural Resources, which has conducted extensive visits between Erbil and Baghdad. As for the producing companies, we are currently trying to implement the agreement, starting with pumping oil according to the agreed-upon mechanisms, based on measuring quantities and quality in the production fields, and ending with measuring the quantities received in the Fishkhabur area under the supervision of the North Oil Company and the Kurdistan Region's Ministry of Natural Resources. The oil is then pumped through Iraqi-Turkish pipelines and received in Ceyhan by the North Oil Company and SOMO. It is then loaded onto tankers in specified quantities. The estimated $16 per barrel is then returned to the Kurdistan Region's Ministry of Natural Resources in accordance with the law. The ministry, in turn, compensates the companies for the quantities produced after subtracting water, sediment, and impurities.
When you discuss this information, the picture seems very clear. But why hasn't the oil been received yet?
The more accurate question is, why hasn't the oil been pumped yet? We are ready to receive it at any time.
Is there any technical issue?
Not at all. We are fully prepared to receive and sell. The mechanism is clear and ready, whether for cash or in-kind payment using crude oil.
You said that the Kurdistan Region's Ministry of Natural Resources is cooperative, and you indicated that the Ministry of Oil is ready and cooperating, and you are also ready as an exporting entity. Where does the problem lie then?
I would prefer you direct this question to the companies rather than us, because all the equipment and machinery are ready and easily implementable, and they are stipulated in the contracts signed with the purchasing companies. These contracts have been submitted to the Kurdistan Region's Ministry of Natural Resources and reviewed by the producing companies. We have not received any comments, whether negative or amendments, for discussion. Everything that has happened so far has been positive from a technical standpoint. Every day we hear about the start of pumping, so we are preparing the tankers.
Do you hear about this, or are you informed?
We have been in continuous discussions, and the negotiating table has been open since the budget law was amended until now. Discussions have never stopped, and whenever there is a readiness to pump, we are informed. The Minister of Oil and the Deputy Prime Minister for Energy Affairs also occasionally state that we expect pumping within a day or two, which indicates the ministry's optimistic view of the necessity of pumping oil. We need to strengthen Iraq's position in the global oil market and increase financial returns, both for the federal government and the Region's share, in addition to paying the dues of the producing companies.
Did the Ministry of Natural Resources or the companies provide you with any feedback on the purchase contracts you concluded with international companies?
No, we did not receive any negative feedback or amendments to the contracts. The contracts were signed and ready for implementation without objections.
Some companies are concerned that the $16 fee does not include payment guarantees.
Is there a stronger guarantee than the law? This law is in effect and binding on the federal Ministry of Oil and the Ministry of Natural Resources in the Kurdistan Region, as part of Iraq. It was ratified by the Iraqi Parliament and the Presidency of the Council. There can be no stronger guarantee than the law itself. There are also cabinet decisions that determine the mechanism for implementing this law, so everything is guaranteed, from oil pumping and measurement to revenues and how they are paid.
As the director of SOMO, do you confirm that the guarantee exists?
Of course, the guarantee exists.
Is the problem with the companies?
I don't want to say that the problem lies with the companies. You can ask them. We are here, ready and prepared to implement.
Regarding the Turkish side, does it have any comments regarding pumping oil through its territory?
There are no comments from the Turkish side. The agreement is valid until July 2026, and we are in discussions with them on the terms and obligations for concluding the new agreement, the draft of which they sent. From our side, we note positive openness from Turkey, not only regarding oil, but also to expand the horizons of cooperation with Iraq.
We heard that the Turkish side is planning an energy agreement that covers areas beyond just oil transportation. Is this true?
Yes, it is. As the Turkish Deputy Minister of Energy stated at the last forum, Turkey views Iraq as a major energy source, which enhances cooperation in areas such as gas, electricity, renewable energy, oil, and petrochemicals. We are reviewing the draft and responding to it to begin negotiations to expand cooperation between the two countries.
Is there a willingness on the Iraqi side to expand this agreement to include other areas such as gas and transportation?
We have a positive outlook toward expansion, but whether it is a single agreement or multiple agreements will be discussed in the future. These agreements could be under a single umbrella that includes oil, gas, and electricity, and this would include not only the Ministry of Oil, but also the Ministry of Electricity and Industry, if we are talking about petrochemicals, and the Ministry of Industry as well.
Regarding Kirkuk oil, there has been pressure to increase its pumping through the existing pipeline from the Kurdistan Region. If an agreement is reached to resume pumping, will Kirkuk oil be transported to the Turkish port of Ceyhan?
This depends on the development of the Kirkuk fields. The Ministry of Oil has concluded a preliminary agreement with British Petroleum (BP), and several international companies are interested in entering as subcontractors to develop these very important fields. The Iraqi government and the Ministry of Oil are seeking to develop them to support the national economy. As the Deputy Prime Minister for Energy Affairs and Minister of Oil stated, most Iraqi production is shared production from oil and gas fields. Therefore, we need to increase oil production to provide the gas we use to generate electricity, in addition to the fertilizer and other petrochemical industries.
What is the current Kirkuk oil production?
I don't have the number. You can direct the question to the Ministry of Oil and the North Oil Company.
What are your expectations for oil prices, especially since Iraq relies heavily on oil for its financial resources?
Currently, the world is experiencing a state of great confusion and uncertainty. If we look at the gap between the global forecasts of 40 to 50 institutions that predict oil prices and global demand for crude, we notice that the gap is roughly equivalent to daily demand. We see that prices are stable, towards a fair price for both consumers and producers. Producers need to cover their costs and achieve a reasonable profit margin, while consumers demand prices that are affordable and commensurate with their capabilities. Prices must also be consistent with the quality of oil required by global industries.
We expect oil prices to remain fair for both parties, as setting a specific price, such as $50, $60, or $70, is irrelevant in the oil market, as the market is balancing towards a fair point that matches supply and demand. As long as the price is fair, all parties will benefit, and production can be increased to cover the gap created in recent years when pressure increased toward renewable energy and the shift away from fossil fuels, which impacted companies due to the taxes imposed on them.
But now, the world is moving toward a balance between oil and renewable energy, with oil, gas, and renewable energy remaining part of the global energy mix. Consequently, consumer needs will be met at affordable prices that support consumption.
Finally, are you optimistic about receiving oil from companies operating in the Kurdistan Region?
Yes, I am optimistic about the positive measures and discussions taking place. Everyone is working in this direction, and this is cause for optimism. All that remains is implementation, so we are optimistic that it will be achieved soon.