ERBIL, Kurdistan Region of Iraq - Iraq's oil ministry on Thursday called on the Kurdistan Region to hand over oil to Baghdad and claimed that, based on their information, oil is smuggled from the Region to external actors.

"The Kurdistan Regional Government must adhere to the constitution, Federal Court rulings, and applicable laws, including the General Budget Law, which obligates the Regional government [KRG] to hand over oil produced from its fields to the federal Ministry of Oil,” read a statement by the Iraqi oil ministry.

The ministry added, “Continued failure to deliver oil causes significant financial losses to Iraq and jeopardizes Iraq's international reputation."

Baghdad also accuses Erbil of failing to “comply with the constitution and law,” which it says has "led to losses in Iraqi oil exports and the public treasury.”

The federal government also claims that they have information that oil is being smuggled out from the Kurdistan Region to outside Iraq.

"We are monitoring information indicating the continued smuggling of oil from the Region outside Iraq, and the ministry holds the Regional government fully legally responsible for this,” the statement detailed.

Exports of the Kurdistan Region’s oil through the Turkish Ceyhan pipeline, where part of Kirkuk’s oil was also exported, were halted in March 2023 after Ankara lost a case against Baghdad in a Paris-based arbitration court. The case accused Ankara of breaching a 1973 agreement by allowing Erbil to start selling oil independently of Baghdad.

Baghdad and Erbil announced in late February that they reached an agreement to resume the Kurdistan Region’s oil exports to the international market, but the process has yet to restart, with international oil producers demanding payment surety, transparent implementation of Iraq’s budget law stipulations, and resolution of payments that are in arrears before resuming the work.

The Iraqi Parliament passed an amendment to the Federal Budget Law in early February, which obliges Baghdad to reimburse Erbil for the production and transportation cost of one barrel of oil at the average cost of production and transportation of the federal oil ministry.

The cost was previously valued at $6 per barrel, which the international oil companies (IOCs) repeatedly criticized as being way lower than their actual expenses. According to the amendments, the IOCs would now be paid $16 per barrel in the first phase, before an independent technical consultant team is assigned to assess the extraction cost.

The halt in exports has dealt a major blow to Iraq and the Kurdistan Region's economy, with well over $20 billion in lost revenue to date.

A Kurdish lawmaker in the Iraqi parliament stated that the only party harmed by the halt in exports is the Kurdistan Region, not Baghdad. 

“The halt in exports of Kurdistan oil has no impact on revenues in Iraq, because Iraq could compensate for the losses from Basra oil, and the money goes to the state treasury. Therefore, the only side damaged is the Kurdistan Region, not Iraq,” Nahro Rawanduzi, deputy head of the oil and gas committee in the Iraqi parliament, told The New Region.