US Pressure on Iraq to Resume Kurdistan Oil Exports to Compensate for Decline in Iranian Exports

The Trump administration has increased pressure on Iraq to restart oil exports from the Kurdistan region and threatened that otherwise, the country would face "Washington's sanctions" like Iran. Reuters reported on Friday, March 3, citing eight informed sources in Erbil, Baghdad, and Washington, that this policy is part of the President's "maximum pressure" strategy against Tehran. One day after the report, Farhad Aladdin, a foreign affairs advisor to the Iraqi Prime Minister, denied reports of US pressure and threats of sanctions against Baghdad in an interview with Reuters. A quick resumption of oil exports from the Kurdistan region could compensate for a potential decline in Iranian oil exports. The US has committed to reducing Iranian oil exports to zero to slow down Tehran's progress towards acquiring nuclear weapons by cutting off its oil revenues. On Tuesday, the Iraqi oil minister unexpectedly announced that oil exports from the Kurdistan region would resume next week. This decision could end a nearly two-year dispute that halted the daily transfer of over 300,000 barrels of Kurdistan oil to global markets via Turkey. The eight sources in Baghdad, Washington, and Erbil, who wished to remain anonymous, told Reuters that the pressures from the new US administration played a key role in this decision. Iran considers Iraq a vital partner against sanctions, but Baghdad, which cooperates with both the US and Iran, does not want to become a victim of Trump's policies to pressure Tehran. The US President has asked Iraqi Prime Minister Mohammed Shia' al-Sudani to "cut" his country's economic and military ties with Iran. Last week, Reuters reported that the Central Bank of Iraq, at the "request of the US Treasury Department," blocked five Iraqi private banks' access to dollars. However, the aforementioned sources say that there are still technical problems regarding the resumption of oil exports from the Kurdistan region, and many questions remain in this regard. Since the closure of the oil pipeline from Kurdistan to the Turkish port of Ceyhan in 2023, oil smuggling from the Kurdistan government to Iran has increased. Six of the eight sources confirmed that the US has asked Baghdad to "stop" this process. According to a Reuters report in July 2024, about 200,000 barrels of cheap oil are smuggled daily from the Kurdistan region to Iran and partly to Turkey. Sources say this amount has remained at the same level currently. An Iraqi oil official, who is aware of the oil transfer to Iran, told Reuters: "The US is pressuring Baghdad to export Kurdistan oil to global markets through Turkey instead of selling it cheaply to Iran." While the closure of the Turkish pipeline has led to an increase in oil smuggling from Kurdistan to Iran, experts say "there is a broader smuggling network in Iraq that generates at least one billion dollars annually for Iran and its proxy forces. This network has expanded since al-Sudani took office in 2022." Two US government officials have confirmed that Washington has asked the Iraqi government to resume oil exports from the Kurdistan region. One of them stated that this action could prevent an increase in global oil prices. A White House official, in response to a question about US pressure to resume oil exports from the Kurdistan region, said: "This is not only important for regional security so that our Kurdish partners can export their oil, but it also helps keep gasoline prices down." Restoring the "maximum pressure" strategy against Iran was one of Trump's first actions after returning to power in late January of this year. In addition to attempting to bring Iranian oil exports to zero, Trump instructed his Treasury Secretary to ensure that Iran could not use Iraq's financial system. Trump also returned to power with the promise of reducing energy costs for Americans. A significant reduction in Iranian oil exports could increase oil prices and consequently global gasoline prices. The resumption of oil exports from Kurdistan could partially compensate for the global supply reduction due to the cut in Iranian exports, but experts believe it will only cover a small portion of the over 2 million barrels per day of crude oil and petroleum products that Iran exports. In March 2023, after the International Criminal Court (ICC) condemned Ankara to pay $1.5 billion in compensation to Baghdad, Turkey blocked the oil export pipeline from the Kurdistan region of Iraq in response. Sources have told Reuters that there are still issues regarding payments, pricing, and pipeline maintenance, and even this week, two days of negotiations on this matter took place in Erbil, which yielded no results. Another source told Reuters that the central Iraqi government wants to resume exports without making commitments to the Kurdistan Regional Government (KRG) regarding payments and without transparency about the payment mechanism. This source in the region added: "We cannot do this. We clearly need guarantees to be specified." Foreign oil companies operating in Kurdistan are also concerned about the payment methods. Alparslan Bayraktar, Turkey's energy minister, also told Reuters that Ankara has not yet received any information from Iraq about resuming the oil flow. The reopening of this pipeline could create problems within OPEC+, the organization of oil-exporting countries along with Russia and other allies. Iraq has been under pressure to comply with its commitments to reduce production. Additional supply from the Kurdistan region of Iraq may push Baghdad beyond the target set for OPEC+ production. An Iraqi official stated that the country might be able to resume the operation of this pipeline while still aligning with OPEC+ supply policies.