Oil flows through Iraqi Kurdistan to Turkey have reportedly plunged this week after Iraq's army seized oil fields held by the Kurds.
The drop follows reports of production disruptions as major oil fields changed from Kurdish to central government control on Monday and Tuesday.
Crude oil shipments through the Iraq-Turkey Pipeline have fallen to one-third of their usual volumes, shipping sources told Platts. Total exports through the line were at 190,000 barrels a day, the source said. Reuters earlier reported flows had slowed to 225,000 barrels a day.
The pipeline runs through the semiautonomous Kurdish region in Iraq's north and typically ships up to 600,000 barrels a day. Flows had already fallen to 350,000 barrels a day by Tuesday, according to Platts.
Oil fields around Kirkuk were reducing production and close to shutting down, sources told Platts. Operators were drawing on oil in storage, threatening to also slow the shipment of crude by tanker, the sources said.
Iraqi forces successfully took back control of oil fields in disputed territories, which the Kurds have expanded into since 2014, when federal forces fled an assault by then-ascendant ISIS militants. This week's Iraqi army operation followed three weeks of escalating tension after the Kurds held an independence referendum, defying Baghdad's demands to scrap the vote.
The conflict has sparked concerns that output from northern fields could essentially remain stuck if the Kurds refuse to ship it through the Iraq-Turkey Pipeline.
Another pipeline to Turkey operated by Baghdad has been repeatedly bombed by ISIS militants and will take several years and hundreds of millions of dollars to repair, according to RBC Capital Markets.
"Hence, these fields changing hands could mean that these barrels end up being stranded if Baghdad and Erbil cannot conclude a pipeline access and a revenue sharing agreement — which could prove to be a tall order in the current environment," Helima Croft, global head of commodity strategy at RBC, said in a research note. Erbil is the capital of Kurdistan.
By Wednesday, Kurdish forces had largely retreated to territories they held prior to the start of their expansion in the summer of 2014, Reuters reported. Iraqi forces have met with little resistance.