U.S. Sanctions Won’t Affect Iraq-Iran Crude Oil Swap Deal

The return of the U.S. sanctions on Iran will not impact an agreement between Iran and Iraq to swap crude oil, Iraq’s Oil Minister Jabbar al-Luiebi said on Friday.

Iraq and Iran agreed last year to begin an oil swap deal this year, under which Iraq will send oil from its northern Kirkuk fields to Iran by truck, to be refined in Iran, while Iran will send the same amount of crude it receives to Iraq’s southern ports for exports.

The deal started earlier this month, after months of delays of the original deadline to begin.

Currently, the crude oil that Iraq is sending to Iran is done in payment for electricity from Iran that Iraq has received, instead of on a crude-oil-swap basis, Iraq’s al-Luiebi said on the sidelines of the OPEC meeting in Vienna today.

“We have just started really small quantities for their refineries, not on a swap basis,” the Iraqi minister told reporters.

The crude oil swap deal—which was initially planned to begin in April—is seen by some as a major influence push by Iran in Iraq, after Tehran helped Baghdad quash an emerging independence movement in Kurdistan that culminated in an independence referendum, the results of which Baghdad refused to recognize. After the referendum, Iraq, helped by Iran, sent troops to Kurdistan and retook control of Kirkuk and the oil fields around the northern Iraqi city.

In earlier reports on the swap deal, an Iraqi oil official had said the initial flow of Kirkuk oil to Iran would be 30,000 bpd, but could rise to 60,000 bpd within a year—the initial duration of the deal—which the sides agreed could be extended.

In the future, the partners plan to build a new pipeline from the Kirkuk field to the border with Iran, to replace the tanker trucks. This suggests that although the initial term of the deal is just one year, there are plans to make it a longer-term deal.

By Tsvetana Paraskova for Oilprice.com