Iraq keen to restart Kurd oil exports

Iraq is seeking to restart oil exports from the country's semi-autonomous Kurdish region as a national election looms. Baghdad has instructed the government-owned State Oil Marketing Organisation to resume the exports "immediately", the Iraqi oil minister Dr Hussain al Shahristani said on Monday. Nevertheless, it was unclear whether the ministry had reached an agreement over the production-sharing contracts that Kurdish leaders have signed with more than two dozen foreign oil firms operating in the north-eastern Iraqi region, and which Baghdad had declared "illegal".

The Iraqi government's failure to recognise the contracts has prevented companies pumping Kurdish crude from being paid for about 90,000 barrels per day (bpd) of oil exports through Turkey that started last June. The exports lasted a mere three months before the situation led to their curtailment. "Finding a solution - to these contracts will take a long time. But exporting oil will resume in the near future, God willing," Dr al Shahristani said.

"The resumption of exports has no connection with finding a solution to these oil contracts," he added. The minister said Baghdad had accepted a Kurdish proposal on payments to oil producers such as DNO International of Norway and Genel Enerji of Turkey. Since halting their exports last September, the companies have been pumping limited volumes of Kurdish oil for the local market. The Kurdistan regional government last month proposed that Baghdad should either pay the firms directly for exports or arrange for the revenue to pass through the Kurdish authorities.

The Kurdish natural resources minister, Ashti Hawrami, told Bloomberg on Monday that he was "awaiting an official response". "I hope we can restart exports soon," he said. "We all can use some good news and we're ready to contribute to the Iraqi economy." The start of Kurdish oil exports was hailed as a breakthrough in Iraqi Arab-Kurd relations, which are viewed as a potential flashpoint threatening national security.

Conversely, the halting of the exports as Baghdad and the Kurds continued to bicker over payment terms represented a setback to the Iraqi prime minister Nouri al Maliki's hopes of delivering a significant reduction in ethnic and sectarian violence ahead of the March 7 election. In January, Mr al Maliki called for an end to the dispute. Kurdish leaders said they hoped to reach an amicable agreement with Baghdad.

Iraqi Kurdistan has the capacity to export about 100,000 bpd of oil and may expand pipelines to more than double that capacity to 250,000 bpd this year, Mr Hawrami said. Dr al Shahristani has said the refurbishment and development of Iraq's main oilfields, which mostly lie outside Kurdistan, under a raft of long-term contracts signed in the past few months could boost the country's oil output capacity to more than 12 million bpd from about 2.5 million bpd within six to seven years, to rival that of Saudi Arabia.

He predicted, however, that the capacity increase would be minimal over the next three years. That leaves the mostly unexploited oil resources of Kurdistan as Iraq's most immediately accessible source of additional revenue from crude exports, if the central government can reach a settlement with the Kurds. The dispute over Kurdish oil contracts is part of a complex, long-running feud between Baghdad and Kurdistan over resources jurisdiction and territory.

As a result of the impasse, a proposed Iraqi federal oil law has been stalled in parliament for the past three years, creating the potential for Baghdad's oil contracts to be overturned if a new government is elected next month. In a separate development this week, Dr al Shahristani said seismic surveys of central Iraq's Al Ahdad oilfield, a relatively minor deposit that China National Petroleum Corporation is developing, suggested it could produce 200,000 bpd of crude instead of the 115,000 bpd previously estimated.

The minister said a newly created Iraqi state firm, Midland Oil Company, would immediately start developing fields close to Baghdad, for which development contracts were not awarded in the ministry's two auctions last year of oil and gas licences. @Email:[e-mail]