Kurdish oil smuggling to Iran flourishes

Heading for Turkey to the north and Iran to the east, hundreds of oil tankers snake each day from near Kurdistan’s capital Erbil, clogging the Iraqi region’s often winding and mountainous highways.

The tankers are the most visible aspect of a massive operation to truck oil from the semi-autonomous region of Iraq to Iran and Turkey in murky, off-the-books transactions that have boomed since an official export pipeline closed last year.

Reuters pieced together the details of this flourishing trade through conversations with over 20 people including Iraqi and Kurdish oil engineers, traders and government officials, politicians, diplomats and oil industry sources.

They painted a picture of a booming business in which more than 1,000 tankers carry at least 200,000 barrels of cut-price oil every day to Iran and, to a lesser extent, Turkey – bringing in about $200 million a month.

The scale of the unofficial exports, which has not previously been reported, is one reason Iraq has been unable to stick to output cuts agreed with the OPEC oil cartel this year, Iraqi officials said.

Iranian and Turkish officials did not respond to requests for comment.

Iraqi oil ministry spokesperson Assim Jihad said the Kurdistan trade was not approved by the Iraqi government and state oil marketer SOMO was the only official entity allowed to sell Iraqi crude.

He said the government did not have accurate figures for how much oil was being smuggled into Iran and Turkey.

“OPEC now has less patience for smuggling and has even been known to slap punitive measures on offending members. I doubt we’ll see any retribution against Baghdad because it’s well known that the Kurdish region lies outside central control,” said Jim Krane at Rice University’s Baker Institute in Houston.

The business could also put Kurdistan on a collision course with close ally Washington, as it assesses whether the trade breaches any US economic sanctions on Iran, according to a US official.

Until last year, Kurdistan exported most of its crude via the official Iraq-Turkey Pipeline (ITP) running from the Iraqi oil city of Kirkuk to the Turkish port of Ceyhan.

But those exports of about 450,000 barrels per day (bpd) halted in March 2023 when an international tribunal ruled in favour of the Iraqi federal government’s call for the shipments to stop – leaving the pipeline in legal and financial limbo.

The federal administration in Baghdad, which has long held that it is the only party authorised to sell Iraqi oil, successfully argued that Turkey arranged the exports with the Kurdistan regional government without its consent, in breach of a 1973 treaty.

Tankers soon started taking Kurdish oil to neighbouring countries instead and the business accelerated this year after talks to reopen the pipeline stalled, industry sources, oil officials and diplomats said.

Local officials said none of the proceeds are accounted for, or registered, in the coffers of the Kurdistan Regional Government (KRG), which has been struggling to pay thousands of public employees.

“There is no trace of the oil revenues,” said regional lawmaker Ali Huma Saleh, who was chair of the oil committee in Kurdistan’s parliament until it was dissolved in 2023. He put the trade at over 300,000 bpd, higher than most other estimates.

Hiwa Mohammed, a senior official in the Patriotic Union of Kurdistan (PUK), one of Kurdistan’s two ruling parties, said the oil was going through border crossings with the knowledge of the regional and federal governments.