Kurdistan Oil Production Creeps Up as Baghdad Agreement Signals Hope for Export Resumption
Peregraf
The Kurdistan Region's battered oil sector is showing signs of life, with production gradually increasing as a new agreement with the federal government in Baghdad offers a glimmer of hope for the resumption of crucial international exports. The deal, however, hinges on delicate negotiations with neighboring Turkey and comes in the wake of devastating drone attacks that crippled a significant portion of the region's output.
The Kurdistan Regional Government's (KRG) Ministry of Natural Resources announced on Wednesday, August 13, 2025, that it had reached a comprehensive agreement with Iraq's Ministry of Oil on a mechanism to restart oil exports. The breakthrough follows intensive negotiations that began on July 17 and included technical delegations visiting all of the region's oil fields to assess technical issues. The final accord was reportedly signed on August 11 by 23 officials from both sides, with 17 representing the federal government.
Under the terms of the new arrangement, the Kurdistan Region will retain 50,000 barrels of oil per day (bpd) for domestic consumption. The remaining production will be handed over to Iraq's State Oil Marketing Organization (SOMO) for export through the Turkish port of Ceyhan.
This development marks a significant step towards resolving a prolonged and costly dispute that has seen exports from the region halted since March 2023. The suspension followed an international arbitration court ruling that ordered Turkey to pay damages to Iraq for facilitating unauthorized Kurdish oil exports between 2014 and 2018. The halt in exports has inflicted an estimated $50 billion in losses on the economies of both Iraq and the Kurdistan Region, according to KRG officials.
Production Ramping Up After Crippling Attacks
The path to this agreement has been fraught with challenges, most notably a series of unprecedented drone attacks in July that targeted key oil infrastructure. These attacks, for which no group has claimed responsibility, forced a dramatic reduction in the region's oil production, which plummeted from approximately 300,000 bpd to as low as 112,000 bpd. Some reports indicated a decline of over 70 percent.
International oil companies were forced to suspend operations at several major fields. Norway's DNO temporarily halted production at the Tawke and Peshkabour fields, while Gulf Keystone Petroleum shut down the Shaikan field as a safety precaution. The attacks targeted five of the region's eight active oil contract areas, including Khurmala, Shaikan, Atrush, Sarsang, and others, causing what the KRG's Ministry of Natural Resources described as "substantial material losses."
However, production is now on an upward trajectory. As of this week, output has recovered to between 215,000 and 220,000 bpd, according to Yadgar Sadiq, head of the Runbin Organization for Transparency in Oil Processes to Peregraf. Seven of the region's nine producing oil fields are back online, including Khurmala, Shaikan, Atrush, Sarsang, Erbil, Sarqala, and Bijil.
In a significant move, Gulf Keystone Petroleum announced on Wednesday that it has resumed production at the Shaikan field, which has a daily capacity of about 45,000 barrels. The company stated the decision was made "following a security assessment and consultation with the Kurdistan Regional Government."
Production remains offline at the Tawke and Peshkhabour fields. The Peshkhabour field's production unit was reportedly damaged in the drone attacks. These two fields have a combined daily production capacity of approximately 70,000 to 75,000 barrels.
Hurdles Remain: Turkey and Financial Woes
Despite the optimism generated by the Erbil-Baghdad deal, significant hurdles remain. The final and most critical step is for the Iraqi federal government to reach an agreement with Turkey to allow the oil to flow through the Kirkuk-Ceyhan pipeline. While Iraqi Oil Minister Hayyan Abdul-Ghani has expressed confidence that exports could resume shortly, the timeline remains contingent on these trilateral talks.
Compounding the issue is the severe economic crisis in the Kurdistan Region, directly linked to the oil export halt. Public sector employees have gone without salaries for two months, a situation that has severely impacted the local economy and eroded public trust. The KRG has stated that resolving the salary dispute is a top priority, but the federal government has linked the payments to the delivery of oil. The new agreement is intended to break this impasse, but until exports are fully operational and revenues flow, the financial hardship for hundreds of thousands of families is likely to continue.
International oil companies operating in the region are also watching developments closely. Gulf Keystone has emphasized the need for "written agreements" before fully restarting pipeline exports, highlighting concerns over payment for production costs and arrears.
As the Kurdistan Region slowly rebuilds its production capacity, all eyes are now on Baghdad and Ankara to finalize the arrangements that will unlock the region's economic lifeline and bring much-needed stability to its people and its vital energy sector.
Text of the Understanding Between the Erbil and Baghdad:
The Oil Handover File
1. The Kurdistan Regional Government will immediately begin handing over all produced oil from the region's fields to the State Oil Marketing Organization (SOMO) for export. The Federal Ministry of Finance will pay $16 (in oil or cash) for each barrel delivered, in accordance with the general budget law, provided that the delivered quantity of oil is not less than 230,000 barrels per day. Any increase in oil production must be determined and delivered through a joint measurement committee. If oil exports are halted for any reason, the total amount of the aforementioned oil will be delivered to the Federal Ministry of Oil.
(Clarification: The current total production is 280,000 barrels per day, according to reports from the Kurdistan Regional Government, of which 50,000 barrels are allocated for domestic use in the region. The remaining 230,000 barrels, along with any future increase in production, will be delivered to SOMO for export).
2. A quantity of 50,000 barrels of oil per day will be allocated for the Kurdistan Region's domestic use, provided that the Kurdistan Regional Government covers the costs of production and transportation. The revenue from the sale of oil products will be returned to the federal treasury, after deducting the costs of production, transportation, and refining. If the region needs more products, the Federal Ministry of Oil will provide it, on the condition that it does not exceed 15,000 barrels of crude oil per day. A joint committee from the Federal Ministry of Oil and the Ministry of Natural Resources of the Kurdistan Regional Government will be formed to determine the actual domestic needs of the region and will submit a report in this regard to the federal government for approval within two weeks.
The Non-Oil Revenue File:
1. The Kurdistan Regional Government, according to preliminary estimates, must hand over 120 billion dinars to the Federal Ministry of Finance as the federal treasury's share of non-oil revenues for the month of May 2025. This point is subject to change after auditing in accordance with point (2) below.
2. A joint evaluation committee from the Federal Ministry of Finance and the Federal Board of Supreme Audit, in coordination with their counterparts in the Kurdistan Regional Government, will classify, audit, and determine the federal government's share of non-oil revenues, starting from May 2025, based on the principle of auditing joint reports from the time the federal budget law came into effect. The committee will submit a report to the federal government for approval within two weeks.
3. Formation of a joint committee of both the federal and regional governments to complete the process of salary Tawteen in accordance with the decision of the Federal Supreme Court within a period of three months, after which salaries will only be paid via the Tawteen system.
4. A team will be formed from the Federal Ministry of Finance and the Federal Board of Supreme Audit, in coordination with their counterparts in the Kurdistan Regional Government, for the purpose of determining the rate of the region's excess in actual expenditures (infaq fi'li) and how to address it in accordance with the general federal budget law for 2023, 2024, and 2025. The team will submit a report to the federal government within two weeks.
5. The Federal Ministry of Finance will send the May salaries for the public employees of the Kurdistan Region after receiving confirmation from the Federal Ministry of Oil/SOMO of the receipt of the full specified amount of oil (currently 230,000 barrels per day) at the port of Ceyhan.
6. These decisions will come into force after their approval by the Council of Ministers.