Iraq’s Kurdistan has agreed new deals to borrow $3bn from trading houses and Russian state oil firm Rosneft that will be guaranteed by future oil sales to strengthen its fiscal position as the semi-autonomous region fights Islamic State.
Kurdistan’s natural sources minister Ashti Hawrami told Reuters the new deals had been concluded in recent weeks. The region also negotiated grace periods of between 3 and 5 years for repaying the debt.
Trading houses have been pre-financing Kurdish oil exports for the past two years after the government in Erbil decided to start independent oil exports via Turkey’s Mediterranean terminals. Rosneft said last week it would join them.
Kurdistan says it needs to export oil independently as Baghdad has not paid Erbil its budget share just as the region needs money to fight Islamic State and host Syrian refugees.
Baghdad has said it would sue buyers of Kurdish oil, arguing that the central government was the only legal exporter. The new Baghdad government has softened its stance, however, as it cooperated with Erbil against Islamic State in Mosul.
“This helps our economic independence although it is important to understand that this cannot be achieved just by oil revenues and higher oil prices. We also need to press on with our economic reforms,” Hawrami said in an interview in London.
“We have learnt a lot from the oil price shock, the costs of fighting ISIS, and the burden of some 1.8mn refugees coming to our territory… Reform is a must – we have a lot of debts to deal with.”
He declined to name the trading houses but market media reports have previously identified Vitol, Petraco, Glencore and Trafigura as buyers of Kurdish barrels. Last week, Glencore confirmed it had concluded deals for Kurdish oil. The other trading houses do not comment on their dealings with Kurdistan and Rosneft did not give any details on the size of the deal.
Hawrami said the deals would serve as a hedge against an oil price slide for several years. Previous deals with trading houses have usually lasted 6-12 months.
“It is also positive for the traders as they don’t have to renegotiate their contracts every six months,” said Hawrami.
“It strengthens our fiscal situation. It means we can pay more regularly to the international oil companies working in Kurdistan and we can invest some money in expanding our oil infrastructure,” he said.
Kurdistan’s finances suffered badly during the oil price slump of 2015-2016 and it has accumulated several months of arrears to producers such as Genel, DNO and Gulf Keystone due to tight revenues and supply glitches.
“This year we want to avoid repeating this. I’m confident we will do better. We know the producers’ needs and plans. We are prioritising not to fall behind again,” Hawrami said.
