The United States is intensifying efforts to push Iraq into resuming Kurdish oil exports through Turkey. Multiple sources familiar with the matter revealed that the U.S. government has urged Iraq to reopen its pipeline or risk facing sanctions, similar to those imposed on Iran. However, an advisor to the Iraqi Prime Minister denied that Washington had issued any threats regarding sanctions.

The resumption of Kurdish oil exports would help offset potential supply shortages caused by U.S. sanctions aimed at halting Iranian oil exports. The U.S. administration has reinforced its "maximum pressure" strategy to weaken Iran’s economy by cutting off its oil revenue, a key funding source for its nuclear program.

Iraq’s Oil Minister unexpectedly announced that oil exports from the Kurdistan region would resume next week, marking the possible resolution of a nearly two-year dispute. The pipeline closure had blocked over 300,000 barrels per day (bpd) of Kurdish crude from reaching global markets via Turkey.

Eight sources in Baghdad, Washington, and Erbil, the capital of Iraqi Kurdistan, confirmed that mounting U.S. pressure influenced this decision. They declined to be named due to the sensitivity of the issue.

Iran, a close ally of Iraq, views its neighbour as an economic lifeline amid sanctions. However, Iraq, balancing relations with both Washington and Tehran, faces a complex geopolitical situation. U.S. President Donald Trump has reportedly urged Iraqi Prime Minister Mohammed Shia al-Sudani to cut economic and military ties with Iran.

Last week, the Iraqi central bank, under U.S. Treasury influence, blocked five private banks from accessing dollars to further restrict Iran's financial networks. While the oil export announcement is a significant step, sources indicated that technical and financial hurdles remain unresolved.

With the closure of the pipeline since 2023, Kurdish oil smuggling into Iran has increased. Six of the eight sources stated that Washington is pressing Iraq to curb these illegal oil transfers.

According to a previous Reuters report, nearly 200,000 bpd of discounted Kurdish oil is smuggled into Iran and, to a lesser extent, Turkey via truck. A senior Iraqi oil official confirmed that "Washington is pressuring Baghdad to ensure Kurdish crude is exported to global markets through Turkey rather than being sold cheaply to Iran."

While the closure of the pipeline has led to an increase in smuggling, a broader network, believed to generate at least $1 billion annually for Iran and its allies, has expanded within Iraq since Prime Minister al-Sudani took office in 2022.

Two U.S. officials confirmed that the U.S. government urged Iraq to resume Kurdish oil exports to ease global oil price fluctuations. One of them explained, "It is not only important for regional security that our Kurdish partners be allowed to export their own oil but also helps keep gas prices low."

Challenges in Restarting the Pipeline

The pipeline shutdown resulted from a March 2023 ruling by the International Chamber of Commerce (ICC), which ordered Turkey to pay Iraq $1.5 billion in damages for unauthorised Kurdish oil exports between 2014 and 2018.

Unresolved issues, including payment mechanisms, pricing disputes, and pipeline maintenance, continue to stall the resumption. Talks held in Erbil this week failed to produce a resolution. The federal government wants exports to resume without committing to payments to the Kurdistan Regional Government (KRG). However, a source close to the matter stated, "We can't do that. We need clear visibility on guarantees."

Oil companies operating in Kurdistan also have concerns. Executives from Norwegian oil company DNO emphasised in a February 6 meeting that they needed clarity on future payments before resuming exports. They are also seeking repayment of the $300 million owed for deliveries made before the pipeline closure.

Turkey, a key player in the equation, has yet to receive formal notification from Iraq regarding the pipeline restart. Turkish Energy Minister Alparslan Bayraktar confirmed on Wednesday that discussions had not yet taken place.

Impact on OPEC

If Iraq resumes Kurdish oil exports, it may face challenges in adhering to its OPEC+ production limits. OPEC+—a coalition of the Organisation of the Petroleum Exporting Countries, Russia, and other oil-producing nations—has placed pressure on Iraq to comply with its pledged output reduction.

An Iraqi official suggested that restarting the pipeline does not necessarily mean Iraq will exceed its OPEC+ quota. Commodity analyst Giovanni Staunovo from UBS explained, "From an oil market perspective, Iraq is bound to the OPEC+ production deal. If the pipeline restarts, I wouldn’t expect additional production but rather a shift in how it is exported—via pipeline instead of trucks."

The U.S. is increasing diplomatic and economic pressure on Iraq to restart Kurdish oil exports, aiming to counter Iran’s influence and stabilise global oil prices. While Iraq has indicated willingness to resume shipments, unresolved technical, financial, and political issues could delay the process.

Additionally, Iraq faces challenges balancing U.S. and Iranian interests while maintaining OPEC+ commitments. The coming weeks will determine whether the pipeline reopens and how it will impact regional and global oil markets.