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Kurdistan to restart oil exports in gesture to Baghdad

Hassan Hafidh, Dow Jones Newswires
 
LONDON--Iraq' s semi-autonomous region of Kurdistan plans to restart 100,000 bbl a day of oil exports next week in a goodwill gesture aimed at breaking a deadlock with Baghdad over payment for previous exports, according to an advisor to the Kurdish minister of natural resources and letters sent to foreign companies working in the region.

The move, which one of the letters said has diplomatic and political support from countries whose oil companies operate in the region, comes at a time of heightened tension between the governments in Erbil and Baghdad, following the disputed entry of several major oil companies into the Kurdish region contrary to the wishes of the Iraqi central government.

Political analysts describe these deals with foreign oil companies as a significant victory for the Kurdish government that strengthen its hand in difficult talks with Baghdad.

If the long-running dispute with Baghdad cannot be resolved, the resumption of oil exports may only last until August 31, according to formal letters, obtained by Dow Jones Newswires, which were sent by Kurdish minister of natural resources, Ashti Hawrami, to one of the contracting companies.

"What I have in mind is to restart the oil exports for only one month ie., for all of August period," Hawrami said in a letter dated July 28. "If the payments are not released by the end of this period, then we agree to halt all the exports at the midnight of 31 of August," he added.

An advisor to Hawrami said he expects exports to restart only on August 7, because companies need some time to prepare.

The Kurdistan Regional Government, or KRG, suspended crude oil exports of nearly 100,000 bbl a day in April, protesting that Baghdad was delaying payment of $1.5 billion it gathered in revenues from those exports. The KRG said it needed those revenues to pay the companies that produced the oil.

Kurdistan says only two payments totaling $514 million have been received, with the last payment made in May 2011. Baghdad said earlier this year that it would release the final payment of $560 million, but was awaiting an audit before it could proceed. Mr. Hawrami, however, said that the entire audit has been completed and sent to Baghdad, but payment still hasn' t been issued.

Hawrami said in a letter that he was restarting exports without a commitment that Baghdad would make the disputed payments, but that he hoped the gesture would break the negotiating deadlock that has reduced Iraqi oil output.

The payment dispute compounds an even longer-running standoff over the legality of oil deals between the KRG and foreign companies.

Thanks to far-better security in the aftermath of the U.S. invasion of Iraq in 2003, Kurdistan was quick to draw in foreign oil companies. It has signed nearly 50 exploration deals, mostly with second-tier international oil companies.

Baghdad maintains all these contracts are illegal, but has seen its position repeatedly defied by major international oil companies that are increasingly drawn to the region as oil contracts in southern Iraq have turned out to be less attractive than anticipated.

In November, Exxon Mobil Corp provoked howls of protest from Baghdad when it became the first major Western oil company to enter Kurdistan. Tensions rose even higher in recent weeks as U.S. oil giant Chevron Corp., France' s Total SA and the oil producing arm of Russia' s OAO Gazprom all struck their own deals in Kurdistan.

Baghdad has been quick to condemn these deals. "Our stand is that any company that signs an oil or gas deal with the Kurdistan Regional Government is blacklisted by the central government," a senior Baghdad oil official said.

Companies signing deals with the KRG have already been excluded from auctions for future oil exploration rights in southern Iraq. However, the central government has held back from excluding Exxon Mobil, Total and Gazprom Neft from oil fields they are already developing in the south.

"The fact that Exxon Mobil is still developing the West Qurna-1 [oil field in southern Iraq] shows the limitations on how much the [Iraqi Prime Minister Nouri] al-Maliki can do to punish companies which sign deals with the KRG," said Greg Priddy, head of global energy at consultancy Eurasia Group.

The Kurdish deals also threaten to undermine Baghdad' s efforts to set tough terms on contracts with oil companies wanting to develop oil fields in the south. "The production sharing contracts awarded by the KRG are potentially more lucrative for the oil companies," Mr. Priddy said.

08/02/2012

 

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