Iraq to Start 60,000 Bpd Oil Swap with Iran as Turkey Pipeline Sidelined

Iraq says it plans to start oil exports to Iran from the northern Kirkuk fields next week under a swap deal announced last month, Press TV reports.

Iraq is about to truck 60,000 barrels per day (bpd) of oil from Kirkuk to Iran’s Kermanshah refinery across the border and ship back refined Iranian oil for southern Iraq. Acting director general of Iraq’s state-oil marketer SOMO Alaa al-Yasiri said Monday the swap will boost the Arab country’s crude oil exports which ran at an average rate of 3.5 million barrels per day in January.

For the time being, tanker trucks will be used for the shipment but Iran and Iraq also plan to build a pipeline to carry the oil from Kirkuk, Iraq’s Oil Minister Jabar al-Luaibi said last month.

Crude oil from Kirkuk used to be sent to the market via Turkey and the Mediterranean. Those sales have been halted since October when Iraqi troops took back control of the oilfields following a secession vote in the country’s Kurdistan. It is yet to be seen whether Iraq will continue to operate the Mediterranean export route after the planned pipeline to Iran comes online.

Iraq’s Oil Ministry has said that the pipeline was “too damaged by attacks by Daesh terrorist gangs to be rehabilitated”.

Iraq exported 250,000 to 400,000 bpd through the pipeline before the start of Daesh insurgency halted the supplies. Until recently, oil from the fields around Kirkuk was shipped to the Turkish port of Ceyhan via a pipeline owned and operated by the Kurdistan Regional Government. However, after the September independence referendum in Kurdistan, Iraqi troops took control of disputed Kirkuk, which falls outside of the autonomous region’s boundaries, and the surrounding fields.

“Last month, Iraq and Iran agreed on an oil swap deal that will run for one year and is subject to renegotiation, “Iraq’s Oil Minister Jabbar al Luiebi said.

The deal envisages the swap of up to 60,000 bpd of crude oil, with the Iraqi oil coming from the Kirkuk field in northern Iraq. In the future, Iraq and Iran plan to build a new pipeline from the Kirkuk field to the border with Iran, to replace the tanker trucks. This suggests that although the initial term of the deal is just one year, there are plans to make it a longer-term deal.

The pipeline to Turkey’s Ceyhan was also subject to a long-standing dispute between Baghdad and the Kurdistan Regional Government. Oil flow was interrupted several months in 2016 as the Iraqi government and the Kurds disagreed on the share of the national oil revenue and budget.

After the Iraqi offense against Kurdistan following the independence referendum that Baghdad rejected, the federal government took over control of the Kirkuk field, but no oil flowed from it. Now Baghdad will transport between 30,000 and 60,000 bpd of Kirkuk crude by tanker trucks to the border with Iran at Kermanshah. In exchange, Iran will supply the same amount of similar-grade crude to Iraq’s south.

SOMO’s crude oil exports have been running at an average rate of 3.5 million bpd so far this month, al-Yasiri told reporters yesterday. The January exports could top the record exports of 3.535 million bpd from December, Reuters quoted al-Yasiri as saying. The exports of Kirkuk crude oil to Iran will begin next week, the official said. Total exports for the country should be higher as SOMO does not control oil sales from the northern semi-autonomous Kurdistan region, estimated at more than 200,000 bpd.

“SOMO’s recent export rate increase is not due to higher production, but to a drop in local consumption. Exports could increase further as Iraq plans to start exports next week from the northern Kirkuk oilfield to Iran, using tanker trucks,” he said. It was not immediately clear why consumption had fallen.

Trucking crude to Iran’s Kermanshah refinery will come under a swap agreement announced last month by the two countries to allow a resumption of oil exports from Kirkuk.

The Iraqi parliament voted on Monday to lift sanctions imposed on banks in the Kurdistan region over the secession referendum.  Iraq is currently producing 4.4 million bpd of oil, making it the second largest producer at the Organization of Petroleum Exporting Countries (OPEC) after Saudi Arabia.