Saudi Arabia and Turkey watch Iran-Iraq oil rapprochement warily

Al-Monitor | : In December 2017, Iran and Iraq signed an oil swap deal, and on Jan. 14, Iraqi Oil Minister Jabbar al-Luaibi announced that Iraq will start exporting oil from the northern Kirkuk fields to Iran before the end of January 2018. This new level of Iran-Iraq cooperation, which brings back memories of the so-called Friendship Pipeline between Iran, Iraq and Syria, is liable to disturb leaders in both Saudi Arabia and Turkey, especially as controversy flares over Turkey’s surreptitious oil trade with the Kurdistan Regional Government (KRG) and Saudi Arabia realizes that 2017 oil export increases from Iraq and Iran may have consequences on the kingdom’s export monopolies and power within OPEC.

Iraq’s plan to start exporting crude oil from the northern Kirkuk fields to Iran before the end of January depends on logistics, Iraqi Oil Ministry spokesman Assem Jihad told Argus Media in November 2017. As Reuters reported last December, “The agreement signed … by the two OPEC countries provides for Iran to deliver to Iraq’s southern ports, on the Gulf, [refined] oil of the same characteristics and in the same quantities as those it would receive from Kirkuk.” Tanker trucks from Kirkuk will deliver crude oil to the Kermanshah border area where Iran has a refinery.

Both parties agreed to swap up to only 60,000 barrels per day (bpd) of crude produced. This is below 25% of the 2014 Iran-KRG pipeline‘s expected capacity, and it is much less than the 90,000 bpd that Baghdad ships to Ceyhan, Turkey. Nevertheless, it can be a game-changer for both parties, opening the way for increased oil trade. As Iranian Oil Minister Bijan Zanganeh told state-run news agency IRIB during the 173rd OPEC meeting, “Although it [the oil swap deal] is considered a small contract in the oil industry, it is a strategic partnership.” Iranian authorities also announced that they are planning to build a pipeline to carry the oil from Kirkuk. The pipeline could replace the existing export route from Kirkuk via Turkey and the Mediterranean by pipeline. It was originally planned to transit the oil via Syria before that country descended into civil war.

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