Iraq restarts some Kirkuk oil exports after year-long halt

LONDON/BAGHDAD (Reuters) - Iraq on Friday restarted exports of Kirkuk oil, halted a year ago due to a standoff between the central government and Kurdistan’s semi-autonomous region, after a new government in Baghdad agreed a tentative deal with Erbil.

FILE PHOTO: An oilfield is seen in the Dibis area on the outskirts of Kirkuk, Iraq October 17, 2017. REUTERS/Alaa Al-Marjani/File Photo

The development is a win for the U.S. government, which has been urging both sides to settle the dispute and resume flows to help address a shortage of Iranian crude in the region after Washington imposed new sanctions on Tehran.

U.S. State Department spokeswoman Heather Nauert said on Twitter that resumption of exports of Kirkuk oil was “another important step in our efforts to reduce Iran’s oil exports.”

Flows resumed at a modest level of around 50,000-60,000 barrels per day (bpd) compared with a peak of 300,000 bpd seen last year and it was not clear when and by how much they would rise, industry sources said.

The Kirkuk crude is being exported to the Turkish Mediterranean port of Ceyhan by a pipeline crossing Kurdistan.

A spokesman for Iraq’s Oil Ministry, Asim Jihad, confirmed exports had restarted, adding that an agreement had been reached to resume flows at 50,000-100,000 bpd.

“The resumption of Kirkuk shipments of between 50,000 and 100,000 barrels per day will not add to Iraq’s total exports,” Jihad said.

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Oil prices rose, with Brent crude up more than $1 per barrel, supported partially by the lower-than-expected flows from Kurdistan.

The deal signals that new Iraqi Prime Minister Adel Abdul-Mahdi and Oil Minister Thamir Ghadhban are ready to work with Erbil despite previous tensions and a failed independence referendum in September 2017.

The halting of exports from Kirkuk in October 2017 stopped almost 300,000 bpd flowing out of Iraq toward Turkey and international markets - causing a net revenue loss of some $8 billion over the past year.

Most of Iraq’s exports come from southern fields, but Kirkuk is one of the biggest and oldest oilfields in the Middle East, estimated to contain 9 billion barrels of recoverable oil.

Exports had been on hold since Iraqi government forces retook Kirkuk from Kurdish authorities in 2017. The Kurds had taken control of Kirkuk and its oilfields after Islamic State militants drove the Iraqi army out in 2014, and Kurdish forces, in turn, ejected the militants.

A pipeline Baghdad once used for export via Turkey was wrecked by Islamic State - leaving only one working.

Kurdistan is producing and exporting some 400,000 bpd via the pipeline. Resumed flows from Kirkuk will lift this to 450,000-500,000 bpd, but short of the 700,000 bpd the Kurdish region had exported at some point last year.

Iraqi authorities say they still need to feed local refineries, where Kirkuk’s output has been diverted over the past year. The refineries are set to receive some 185,000 bpd under the latest deal, the sources said.

Baghdad and Erbil have yet to find a compromise over maximum flow levels as well as budget transfers from the central government to Erbil - something the two sides have struggled to agree on for many years.

Reporting by Dmitry Zhdannikov in London and Ahmed Rasheed in Baghdad; Editing by Dale Hudson, Louise Heavens and Adrian Croft