Iraqi Kurdistan halts oil exports in fuel row

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Al-Akhbar Management

Published Monday, April 2, 2012

Iraq's autonomous Kurdistan region halted its oil exports on Sunday, accusing the central government in Baghdad of failing to make payments to companies working there in the latest clash in their long-running dispute over oil rights.

The disagreement heightens tensions in a broader dispute between federal authorities and ethnic Kurds over contested land, political autonomy and oil that has become a potential flashpoint for Iraq since the last US troops left in December.

Baghdad says only the central government has the right to export oil, but the Kurdistan Regional Government says that it can control petroleum in its region, a disagreement that is disrupting payments to companies like Norway's DNO.

"After consultation with the producing companies, the ministry has reluctantly decided to halt exports until further notice," Kurdistan's Ministry of Natural Resources said in a statement.

"There have been no payments for 10 months nor any indication from the federal authorities that payments are forthcoming," it said.

Deputy Prime Minister for Energy Hussain al-Shahristani accused Iraqi Kurdistan of damaging the country's budget.

"This will cause a budget deficit and the government should act to preserve Iraqi resources," Shahristani told reporters, without giving details on what action the central government would take.

Iraq's central government says exploration deals signed with Kurdistan are illegal.

Kurdistan says only two payments totaling US$514 million have been received, with the last payment made in May 2011.

Baghdad has made payments to companies in Kurdistan in the past for exploration and extraction costs based on an interim agreement.

Officials from Iraq's oil ministry could not immediately be reached for comment. But Baghdad says it has already approved payment of US$560 million to oil producers in the Kurdish region and is awaiting final audits.

The KRG said last week it had reduced oil exports to 50,000 barrels per day over the payment dispute. Iraq's government says it receives on average 70,000 to 75,000 bpd from Kurdistan, but says it only received 65,000 bpd since the start of the year.

Tensions between Baghdad and the Kurdish region have risen since October when Exxon Mobil announced a deal to explore for oil in Kurdistan.

Baghdad warned the US oil giant could risk its agreements with the central government, prompting Exxon Mobil to pull out of the Kurdish deal.

Iraq's Oil Minister Abdul Kareem Luaibi said on Monday that Exxon Mobil had sent a second letter to the oil ministry confirming its decision to freeze its oil deals with the Kurdish autonomous region.

Iraqi lawmakers are still haggling over a national oil law that is meant to define who controls oilfields and revenues, creating a more solid legal framework for companies working in the OPEC nation.

But highlighting tensions over future investments, Iraq's central government has banned companies working in Kurdistan from participating in its fourth oil bidding round planned for this year for 12 new exploration blocks.

Iraq's government is moving to centralize authority and exert sovereignty over its natural resources, but northern Kurdish authorities are adamant to control oil reserves in their region.

Iraqi Kurds gained greater autonomy during the US occupation of Iraq, and its continued refusal to cooperate with the federal government raises fears that it is attempting to splinter from the oil-rich nation, dividing Iraq along ethnic lines.

As much as a third of the oil extracted in northern Iraq is refined locally for domestic use, partly due to late payments from Baghdad for crude pumped into the major pipeline to Turkey and partly because it reduces the costs of producers.

Iraq has some of the world's largest oil reserves and Baghdad has signed multibillion-dollar contracts with global oil majors.

But after Exxon agreed to its deals with Kurdistan, other oil majors, including France's Total, are considering deals with the northern region, undermining Iraq's national unity.

(Reuters, Al-Akhbar)

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