Norwegian independent DNO said it has restarted crude production from the Tawke oil field in northern Iraq, four months after the closure of a key export pipeline to Turkey forced the company and fellow operators in Iraq's semi-autonomous Kurdistan region to shut in output and rein in their investment plans.

The field is producing around 40,000 b/d, DNO said today, which is only around 5,000 b/d short of last year's average. With the export pipeline to the Turkish Mediterranean port of Ceyhan still closed, half of Tawke's output is being delivered to the Kurdistan Regional Government (KRG) and the rest is being sold to local trading companies, with prices averaging around 50pc of pre-closure levels, DNO said.

"While there is no light at the end of the export pipeline, we are seeing the headlights of more and more incoming tanker trucks loading up our Tawke cargoes on a cash-and-carry basis," said DNO's executive chairman Bijan Mossavar-Rahmani.

DNO said it restarted Tawke last month to carry out well integrity tests. It decided to keep the taps on in response to strong demand for the crude but the nearby Peshkabir field in the same licence remains closed, the company said. It is not clear how many other operators in Iraqi Kurdistan plan to follow DNO's lead. Gulf Keystone, which operates northern Iraq's Shaikan field, floated the option of selling crude to local buyers back in June.

Turkey ordered the pipeline closure in late March after an international arbitration ruling said it had breached a bilateral agreement with Iraq by allowing KRG crude to be exported without Baghdad's consent. The KRG said in May that it had reached a deal with Baghdad on measures to allow oil exports through Turkey to resume and that Iraq's federal oil marketer Somo had asked Turkish authorities to facilitate the restart, but no timeline to resume pipeline operations has been announced.

Knock-on effects

The closure has had a significant impact on the finances of foreign oil firms operating in the region. DNO and its partner at Tawke, Genel Energy, have said they will pare back investments in Iraq until the situation is resolved.

DNO reported today that it swung to a loss of $18.5mn in the second quarter from a profit of $87.4mn in the previous three months and $72.3mn in April-June last year, with its revenues squeezed by a sharp drop in production. The firm said its net oil and gas output hit a 13-year low of around 14,400 b/d oil equivalent (boe/d) in April-June, compared with almost 92,000 boe/d a year earlier. Gross crude production from the company's operated licenses in Iraqi Kurdistan averaged just 65 b/d during the second quarter, down from over 107,000 b/d in the same period of 2022. The small volumes that were produced in the few weeks after the pipeline closure were placed in storage tanks.

The pipeline closure has also had a marked effect on the wider crude market, notably in Europe. The removal of northern Iraqi crude from international export markets, combined with Opec+ production cuts and sanctions on Russian Urals, has pushed up the price of North Sea sour grades, prompting European refiners to switch to lighter and sweeter crudes, in particular more affordable US WTI. The shift in crude slates is having a knock-on effect on refinery runs, yields and margins in Europe.