x Abu Dhabi, UAE Thursday 20 July 2017

Bickering in Iraq over oil revenue hurts country

Kurdish oil exports have fallen to a third of their usual levels, and an Iraqi oil official says the reason is Baghdad's delay in paying for the crude.

A worker at an oil refinery in Kurdistan.
A worker at an oil refinery in Kurdistan.

A long-running oil dispute between two centres of power in Iraq has reignited.

Exports from Iraqi Kurdistan, the semi-autonomous region in the country's north, have slowed from 160,000 to 50,000 barrels per day (bpd) over the past two weeks.

The Kurdish regional government said in a statement that the drop stemmed from difficulties with export infrastructure, while Abdul-Kareem Luaibi, the oil minister in Baghdad, said the decline would hurt the economy in Kurdistan and the rest of Iraq.

"The first loser is going to be the Kurdish people as they will lose 17 per cent of the value of their stopped production," Mr Luaibi said this week.

The real reason Kurdistan reduced exports, according to unnamed Iraqi oil ministry officials quoted by Dow Jones, was that Baghdad had been delaying payments for crude.

Exports from Kurdistan have been flowing only since February, when Erbil and Baghdad agreed to an interim agreement in which Erbil receives 17 per cent of the national budget. Before that, Erbil had stopped exports because of a dispute with Baghdad over how to share revenue and who would pay oil companies for the costs of exploration and production.

During the year-long moratorium, DNO International, a Norwegian producer that was the first to strike oil in Kurdistan and in which the UAE's RAK Petroleum owns a 30 per cent stake, was forced to sell oil locally at lower prices. It received its first payment from Baghdad this year.

Other companies with investments there include Sinopec, Gulf Keystone and Heritage Oil.

Kurdistan's crude represents a small share of Iraq's overall exports, which totalled 2.1 million bpd last month. But that share is expected to grow as foreign investors flock to Kurdistan, and Baghdad is banking on that flow to help it reach its 12 million bpd pumping target.

The latest arrival is Vallares, the US$2.1 billion (Dh7.71bn) energy investment vehicle backed by Tony Hayward, the former BP chief, and Nat Rothschild, a financier. Last week it confirmed that it would merge with Genel Enerji, a Turkish company that pumps oil in Iraqi Kurdistan.

The outcome of that investment depends on a national oil law that is awaiting approval in the Iraqi parliament. The document drew ire from Erbil, which said it had not been consulted on the draft.

A question on the minds of oil companies is whether contracts signed with Kurdistan will be deemed valid. Baghdad has said that companies operating in Kurdistan will not be allowed to bid on Iraq's other oil fields. The ministry has opened up concessions with an estimated 10 billion barrels in reserves.

 

ayee@thenational.ae