Rosneft to Operate Main Iraqi Kurdish Oil Pipeline

Russia’s biggest oil company, Rosneft, has agreed to take control of Iraqi Kurdistan’s main oil pipeline, boosting its investment in the autonomous region to $3.5 billion despite Baghdad’s military action sparked by a Kurdish vote for independence.

Rosneft’s investment comes amid a crisis in Kurdistan’s relations with the central government in Baghdad since the region held an independence referendum last month, Reuters reported.

Rosneft said it would own 60% of the pipeline, with current operator KAR Group retaining 40%. Sources familiar with the deal said Rosneft’s investment in the project was expected to total about $1.8 billion.

That comes on top of $1.2 billion that the Russian firm, which has struggled to raise western loans due to US sanctions, lent Kurdistan earlier this year to help fill holes in its budget. Rosneft also agreed to invest another $400 million in five exploration blocks. Kurdish oil exports face the worst disruption in months and are running at only a third of capacity, threatening repayments to Rosneft and other major creditors, including top trading houses such as Glencore and Vitol.

The Iraqi Kurdistan has borrowed around $4 billion from Rosneft, traders and Turkey, guaranteed by future oil sales. As exports have dropped to around 200,000 barrels per day this week from usual volumes of 600,000 bpd, traders have become jittery about the billions of dollars at stake.

“We are monitoring the situation as there could be payment delays,” Glencore Chief Executive Ivan Glasenberg said on Thursday.

Exports were disrupted after the Iraqi military took over the oil-rich Kirkuk area from Kurdish Peshmerga forces this week, resulting in production disruptions from local fields.

Baghdad has also threatened to re-route a big chunk of oil flows towards an old oil pipeline, which has been out of operation for several years since Kurdistan built its own infrastructure to the Turkish Mediterranean port of Ceyhan.

Industry experts have said the plan was unrealistic as the pipeline was old and rusty and needed major investments.

Baghdad also asked oil major BP to return to Kirkuk and help it revive production there, signaling it was determined to deprive Erbil of a big chunk of revenues.  Rosneft will be investing in expanding Erbil’s independent pipeline, hoping to boost its capacity by a third to 950,000 bpd. That is the equivalent of about 1% of global supply.