Iraq’s Kurds bypass state for oil exports on way to more control



DUBAI (Bloomberg) -- Iraq’s self-ruled Kurds are bypassing the government in Baghdad and independently selling all the crude oil exported from their region for the first time as they take greater control of their own affairs.

The Kurds are shipping as much as 600,000 bopd from their fields and haven’t sold any oil through the national marketing agency since June, Safeen Dizayee, a spokesman for the Kurdistan Regional Government, or KRG, said on Monday.

In a further step toward financial independence from the central government, the Kurdish parliament has approved a plan to sell as much as $5 billion in bonds to pay for infrastructure projects, he said in a telephone interview from the city of Erbil. It may issue $2 billion in an initial sale, he said.

“Since July 1, our exports have become independent,” Dizayee said. “This doesn’t mean that there is no place for talks or understanding. Any new deal should be done on a win-win basis.”

Iraq’s minority Kurds, who historically have resisted control by Arab-dominated governments in Baghdad, are independently developing oil reserves they say may total 45 Bbbl - equivalent to almost a third of Iraq’s deposits, according to BP Plc data. The Kurds have long operated a separate military force, which last year occupied the long disputed, oil-rich territory around Kirkuk as the Iraqi army fled from Islamist militants. Shortly afterward, the Kurds started to sell some crude on their own, a process completed by this week’s announcement.

Oil Surge

The KRG’s decision to sell all its oil production may rekindle political conflict with Baghdad and threaten a surge in Iraq’s output.

Increases this year in oil exports from OPEC’s second-biggest producer may fall short of a fifth monthly record if the federal government and Kurds revive a dispute over crude revenue. The KRG’s decision to export unilaterally suggests a December agreement between the two sides to jointly market crude from Kurdish fields is unravelling.

“Whether the deal can be maintained seems doubtful,” Edward Bell, a commodities analyst at Dubai-based bank Emirates NBD PJSC, said Sunday. “It does raise questions for buyers of Kurdish oil since it will leave doubt about the legitimacy of what they’re buying.”

Islamist Rebels

Iraq is exporting the most crude in at least 25 years, even after Islamist rebels seized much of the country’s northwest. It produced 4.39 MMbpd in June, second only to Saudi Arabia in the Organization of Petroleum Exporting Countries, data compiled by Bloomberg show. Exports reached a record of 2.98 MMbpd in March and have risen each month since, adding to a worldwide glut.

Kurdish officials have said they haven’t received funds owed them under a revenue-sharing agreement, while Iraqi officials said the KRG hasn’t supplied Baghdad with enough crude for sale.

When the KRG sought to export oil on its own last year, the central government waged a legal battle to stop the cargoes from unloading, including a tanker that reached the Texas coast.

“All oil sales that happen outside SOMO are illegal,” Laith Al-Shaher, director general of the legal department at the oil ministry in Baghdad, said on Sunday.

Tensions between the two governments threaten the reliability of exports from northern Iraq, according to Harry Tchilinguirian, head of commodity market strategy at BNP Paribas SA in London.

Questions over who has title to the oil, the KRG or the central government, “may cause some reluctance about whether buyers choose to lift that crude,” he said Tuesday. “They will have to find a resolution. It’s in their mutual interest.”

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