Oil prices edged lower on Monday morning on expectations that exports from Iraq’s Kurdistan region could resume this week and amid uncertainty over a possible Russia-Ukraine peace deal.
Brent, the benchmark for two thirds of the world’s oil, was trading 0.1 per cent lower at $74.39 a barrel at 11.36am UAE time. West Texas Intermediate, the gauge that tracks US crude, was down 0.21 per cent at $70.25 a barrel.
The resumption of exports from the semi-autonomous Kurdish region in northern Iraq, potentially this week, will end a nearly two-year dispute over Kurdish crude shipments.
A 970-kilometre pipeline transports Iraqi crude oil, primarily from the Kirkuk area to export terminals at Ceyhan port on Turkey's Mediterranean coast.
Iraq will initially ship 185,000 barrels per day from the region’s oilfields through the pipeline once shipments resume, the Iraqi News Agency reported on Sunday, citing an official.
Basim Mohammed, Iraq's Deputy Oil Minister for upstream operations, said that Kurdistan's oilfields currently produce 300,000 bpd. Of that, 185,000 bpd are earmarked for export after domestic needs are met.
On Saturday, the Iraqi Oil Ministry announced that it had finalised steps to restart oil exports through the Iraq-Turkey pipeline, INA reported.
In March 2023, Turkey suspended the flow of about 450,000 barrels of Iraqi oil daily through the Ceyhan pipeline, with roughly 370,000 bpd originating from the Kurdistan region.
The stoppage came after an arbitration court ruled in favour of Baghdad, saying Ankara had breached a 1973 agreement when it allowed the Iraqi Kurdistan administration to pump without the consent of the federal government in Baghdad.
Since then, Baghdad and the region have failed to agree on issues related to resumption of exports, including the approval of deals the Kurds signed unilaterally with oil companies and a system for payment of developers.
"It remains unclear to me how much time is needed to settle the restart of the pipeline with Turkey, so my sense is that there is a bit too much optimism about an imminent restart," said Giovanni Staunovo, strategist at UBS.
"Also, a restart of the pipeline should not be interpreted as an increase in Iraqi production, as currently the Kurdistani crude is exported already via trucks or used domestically, while Iraq [has] reaffirmed its commitment to the Opec+ production deal. So, all in all, I think the market should react muted to the news," he told The National.
Last week, Reuters reported, citing several sources, that the Trump administration had been piling pressure on Iraq to allow Kurdish oil exports to restart or face sanctions alongside Iran.
Growing pressure from the Trump administration was a key factor behind Iraqi Oil Minister Hayan Abdul Ghani’s surprise announcement last Monday of plans to resume exports from Kurdistan this week, Reuters reported, citing sources.
An adviser to Iraq’s Prime Minister Mohammed Shia Al Sudani denied the report, saying there had been no threat of sanctions “or any form of pressure” on Iraq in all the contacts that had taken place with the US administration recently.
Investors are also closely monitoring the progress of discussions to end the Russia-Ukraine war, which entered its fourth year on Monday.
An emergency EU summit has been scheduled for March 6, where leaders will address increased aid for Ukraine, European security measures, and the funding of European defence, officials said.
Talks between the US and Russia in Riyadh last week have raised the prospect of ending the conflict, but the fact that Ukraine and the EU were excluded from these discussions has led to worries that any peace agreement could favour Moscow.