The Kurdistan Regional Government (KRG) has agreed to start exporting under the framework of the central Iraqi government in return for payments owed by Baghdad, according to statements from the national and regional oil ministries.
The agreement, which was made during Iraq Oil Minister Adel al-Mahdis visit to Iraqi Kurdistan, represents the first step in resolving a standoff between Erbil and Baghdad that has seen the KRG export crude independently to the international market.
Under the agreement, the KRG has agreed to place 150,000 barrels a day (b/d) of crude oil at the disposal of the central government, which will pay $500m to the Kurdish government.
The Oil Ministry agreed with the provincial government of Kurdistan to start the first steps of trust rebuilding and solve the disputes totally, fairly and constitutionally, said Al-Mahdi in a statement on the ministrys website.
The two sides said the agreement would be discussed further by a Kurdish delegation visiting Baghdad in November led by Iraqi Kurdistan Prime Minister Nechirvan Barzani.
The KRG said the visit would develop a comprehensive, fair and constitutional solution for all the outstanding issues.
Relations between Erbil and Baghdad have become increasingly strained since June, when the KRG seized oil production assets in Kirkuk, in northern Iraq, as the area came under threat from Islamic State in Iraq and Syria (Isis).
Exports from the Kirkuk fields had already been offline since March, when the Kirkuk-Ceyhan pipeline was damaged by Islamist militants.
The current agreement should be respected and developed truthfully and faithfully, especially with the visit of [Barzani] to Baghdad within the next days, which will guarantee that, 1 million b/d of outcome from Kurdistan, the northern and Kirkuk fields will be returned to the Treasury, Al-Mahdi said in his statement.
Tens of billions of dollars in Iraqi government revenue have been lost due to the KRGs appropriation of the northern oil fields, according to the oil minister, who said the funds were especially important in light of the recent drop in oil prices.
In early November, the KRG announced its independent exports had hit 300,000 b/d and it expected to expand sales to 500,000 b/d during the first half of 2015. The figures do not include the capacity of the oil fields seized in Kirkuk, which are estimated at more than 400,000 b/d.