Iraq Is Choking Off Billions in US-Backed Oil Exports. Businesses Are Imploring Congress To Help.

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January 29, 2024

The Iraqi government is choking off the exportation of more than 400,000 barrels of oil per day in the country’s Kurdistan territory, prompting a regional trade association to petition Congress for help pressuring Baghdad to reverse course.

The Association of the Petroleum Industry of Kurdistan warned in a letter sent Monday to the House and Senate foreign affairs committees that U.S. and international investments totaling more than $10 billion "are now at risk" as the Iraqi government prevents the crude oil from reaching the market. More than $7 billion in revenue has been lost as a result of the impasse, according to the group.

The issue has been percolating for more than 10 months, but threatens to further inflame tensions in a region that is already facing the possibility of a broader conflict with Iran-backed terrorist proxies. Tehran’s Iraq-based militants have repeatedly attacked U.S. positions and are responsible for a weekend strike in Jordan that killed three American service members. Iraq’s Kurdish region has served as a stable U.S. ally amid the chaos, but with Baghdad’s government becoming increasingly close to Iran, the lost revenue from these oil sales is jeopardizing stability in the Kurdistan region.

"The halt of crude oil exports from the region, now lasting over 10 months, coupled with the unresolved Federal Budget issues by the [government of Iraq], continue to threaten the fiscal stability and autonomous status of the [Kurdistan region]—a region that has been a steadfast security ally of the United States in the Middle East," the petroleum association wrote in its letter to Congress, a copy of which was obtained by the Washington Free Beacon. The organization represents eight international oil and gas companies operating in Kurdistan, including three U.S.-owned companies and several others with substantial American investments.

The letter comes ahead of a visit to the White House by Iraqi prime minister Mohammed Shia Al Sudani. The business association is asking lawmakers to help pressure Al Sudani on the unresolved oil crisis during his visit to Washington, D.C. Without a resolution, the group says, U.S. investments are "being jeopardized" and Iran’s hand in the country strengthened.

"We remain committed to Kurdistan, despite the recent ballistic missile attacks and increased threats from Iranian-backed militia groups throughout Iraq," the association wrote. "It is imperative that we resume full oil production and recommence oil exports from Kurdistan to create economic stability in the region as a bulwark against destructive and destabilizing influences from external actors."

Oil from the Kurdistan region is a central revenue stream for the U.S. ally, and is backed with significant public and private sector investments, including around $300 million from the U.S. Development Finance Corporation.

The Kurdish government, which operates autonomously from Iraq’s Baghdad-based government, is already facing budgetary woes, and the halt in oil revenue has exacerbated the crisis, threatening to erode a bulwark against Iranian meddling in Iraq.

"The Iraqi prime minister should demonstrate that he is committed to leading his government to deliver a mutually beneficial solution that will no longer economically strangle the Kurdistan Region of Iraq," Myles B. Caggins III, the association’s spokesman, said in a statement. "This solution includes resumption of oil exports from the Kurdistan Region into the international markets with payment and contractual certainty for western and American companies to resume operations."

Congress has also raised concerns about the situation, with several Republican members of the House Foreign Affairs Committee pressuring the White House late last year "to end the unacceptable treatment of Iraqi Kurds and the Iraqi Kurdistan Regional Government (KRG) by Iran-aligned elements in Iraq."

"The closure of the Iraq-Türkiye pipeline," they wrote, "has cut off the KRG from the majority of its revenue. This comes at a time when oil prices are rising and Iran is able to export oil with seeming impunity, despite U.S. sanctions."