U.S. pressures Iraq to resume Kurdistan oil exports: sources

WASHINGTON,— The United States is increasing pressure on Iraq to restart oil exports from the semi-autonomous Kurdistan region, warning that failure to do so could lead to sanctions, multiple sources familiar with the discussions told Reuters.

A senior advisor to Iraq’s prime minister denied there had been any direct threats from Washington, saying in a statement that conversations between the two governments had not included ultimatums.

The resumption of Kurdish oil exports, which have been halted for nearly two years, would help offset potential losses from Iranian crude as the Biden administration intensifies its efforts to cut Tehran’s oil revenues to zero.

The White House has maintained that economic isolation is a key tool in limiting Iran’s nuclear ambitions.

Iraq’s oil minister unexpectedly announced on Monday that exports from the Kurdish region would resume next week. If implemented, the decision would reopen a crucial pipeline carrying over 300,000 barrels per day (bpd) to Turkey and global markets.

Sources in Baghdad, Erbil, and Washington, speaking on condition of anonymity, said U.S. officials had applied mounting pressure on Iraq’s leadership to approve the move.

Washington’s efforts come as it urges Iraq to reduce economic and military ties with Iran, which relies on Baghdad as a financial and trade lifeline amid Western sanctions.

In recent months, the U.S. Treasury Department has increased scrutiny on Iraq’s banking system, pushing Baghdad to restrict dollar transactions by financial institutions suspected of facilitating money flows to Iran.

Last week, Iraq’s central bank blocked five more private banks from accessing U.S. currency at the request of Washington.

With the Turkey-Ceyhan pipeline shut since 2023, Kurdish crude has been transported to Iran via illegal smuggling networks. According to industry and government sources, an estimated 200,000 bpd of discounted crude is being smuggled by truck to Iran and, to a lesser extent, Turkey.

“The U.S. wants Baghdad to ensure Kurdish crude is exported through Turkey rather than being sold off-market to Iran,” an Iraqi oil official told Reuters.

Observers and local watchdogs have long criticized the Kurdistan Regional Government (KRG) for a lack of transparency regarding oil revenues. Billions of dollars remain unaccounted for, with financial oversight mechanisms described as weak or nonexistent.

The Barzani family, which dominates Kurdish politics, has repeatedly been accused of enriching itself through oil revenues while failing to provide economic stability for the region’s population. Critics say the family operates as an oligarchy, with key government positions controlled by relatives of tribal leader and former president Massoud Barzani. His son, Masrour Barzani, serves as the region’s prime minister, while his nephew, Nechirvan Barzani, holds the presidency.

According to analysts, corruption within the Kurdish oil industry has made Iraqi Kurdistan a hub for illicit financial activity. Despite repeated promises to disclose oil revenue details, the KRG has been accused of conducting secretive deals without oversight from Iraq’s federal government or Kurdish lawmakers.

The pipeline closure in March 2023 followed an international arbitration ruling ordering Turkey to pay $1.5 billion in damages to Iraq for unauthorized Kurdish oil exports between 2014 and 2018. Despite the recent announcement, unresolved issues over payments and pricing remain, sources said.

Talks in Erbil this week failed to produce an agreement, according to individuals familiar with the negotiations. Iraq’s federal government has insisted on resuming exports without committing to payments for the KRG, raising concerns among oil companies operating in the region.

Executives from Norwegian firm DNO have sought clarity on how they will be compensated for future deliveries and for the $300 million in oil exported before the pipeline shut down.

Meanwhile, Turkey has not yet received official confirmation from Iraq about when oil flows will resume, Turkish Energy Minister Alparslan Bayraktar told Reuters on Wednesday.

Restarting Kurdish exports could also complicate Iraq’s commitments to OPEC+, the alliance of oil-producing nations that includes Russia and Saudi Arabia. Iraq has pledged to cut production under the group’s agreements, and additional output from the Kurdish region could push the country over its limit.

However, some analysts believe the impact on global markets will be limited. Giovanni Staunovo, a commodities analyst at UBS, said the resumption of Kurdish exports would primarily change how Iraqi oil is transported, rather than significantly increasing total production.

Despite U.S. efforts, Iran has historically found ways to bypass sanctions on its oil sales. Observers say Kurdish exports alone will not be enough to offset the potential loss of Iranian crude, which remains a major supplier to the global market.

(With files from Reuters)