x Abu Dhabi, UAEFriday 21 July 2017

Oil dispute between Baghdad and Kurdistan flares up again

Iraq's long-standing oil dispute with Kurdistan has flared up again after Baghdad rebuked Erbil over crude exports to neighbouring Turkey.

Iraq's long-standing oil dispute with Kurdistan has flared up again after Baghdad rebuked Erbil over crude exports to neighbouring Turkey.

The Kurdistan Regional Government (KRG) said this week it had sent a limited amount of crude across the border to Turkey in exchange for refined products, a move that met with a stern response from Baghdad.

"This is an illegal and unconstitutional business that we will take the right decision against," said Faisal Abdullah, a spokesman for Hussein Al Shahristani, Iraq's deputy prime minister for energy. "The [Iraqi government's] oil ministry solely reserves the right to export crude oil, gas or oil products to other countries."

The Kurds say only a small amount of crude crosses over to Turkey - carried by four tanker trucks a day. In exchange, Turkey is sending back diesel for use in Kurdish power plants.

Baghdad insists on control over all crude exports from the semi-autonomous region. But the KRG has stopped channelling its oil to the Iraqi export hub at Kirkuk, alleging that promised payments had not been forthcoming.

The dispute is political, as Baghdad fears that Kurdistan would eventually break away from Iraq if given autonomy over its energy reserves.

Consequently, successive Iraqi governments have declared independent exports illegal and refused to recognise contracts between the KRG and international oil companies (IOCs).

The Kurds stopped their exports of nearly 100,000 barrels per day via the rest of Iraq in April, complaining that promised payments of about US$1.5 billion (Dh5.51bn) had not been made and that the KRG was not receiving enough refined products.

Exports had resumed two months earlier after the central government had promised to pay exploration costs and expenses to the plethora of IOCs in the Kurdish region.

The stand-off has assumed a greater importance since bigger players have entered the stage.

Last November, ExxonMobil, the world's largest oil company, gained rights to six concessions in Kurdistan. In response, Baghdad blacklisted the American major from the latest bidding for concessions in the south of the country, but this has not deterred France's Total from publicly considering whether to follow Exxon's lead.

Vallares, the investment vehicle controlled by the former BP boss Tony Hayward, has also made a sizeable investment in Kurdistan, acquiring the Turkish producer Genel Energy, which is active in the region.

Kurdistan is seen as one of the last frontier regions by the oil industry, which is frustrated by the poor terms offered in the south of Iraq.

Increasingly friendly relations between Turkey and the KRG, and tentative plans to build a pipeline directly between the two, are unnerving Baghdad, but these developments are good news for the oil companies in Kurdistan.

"A pipeline that could not be interfered with by Baghdad - that would be the ideal option for IOCs," said Samuel Ciszuk, an analyst for KBC Energy Economics.

"If you can't compromise, then you're going to be faced with radical options," he said, speaking of Baghdad's anxieties

fneuhof@thenational.ae

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