Iraqi PM Sudani discusses oil exports and elections during visit to Kurdish region

Natural resources and government formation process among issues on the table

Iraqi Prime Minister Mohammed Shia Al Sudani meets with the Prime Minister of the Kurdistan Regional Government, Masrour Barzani. Photo: Prime Minister of Iraq's Office

The semi-autonomous Kurdish region of Iraq welcomed Iraqi Prime Minister Mohammed Shia Al Sudani on Wednesday as the two governments in Erbil and Baghdad attempted to resolve a long-running oil dispute.

Mr Al Sudani was received by Prime Minister Masrour Barzani in Erbil, the seat of the Kurdistan Regional Government, before holding talks on several issues. He later met with the region's President, Nechirvan Barzani.

Mr Al Sudani congratulated the Kurds for holding the long-delayed parliamentary elections last month, which saw a turnout of 72 per cent. He encouraged the Kurdish parties to form a new government as soon as possible to “enhance co-operation between the Federal Government and the Regional one,” the Kurdistan Region's Government said.

“The political stability in the region is a fundamental pillar for Iraq's overall stability,” the statement cited Mr Al Sudani as saying. He also offered to assist in the process.

Baghdad and Erbil have disagreed over several issues since the 2003 US-led invasion that toppled Saddam Hussein, including natural resources and control over disputed lands claimed by both sides.

After the 2003 invasion, the Kurds gained official autonomy, formalising a situation that had been in place since 1992, when Iraqi government forces withdrew from the region after their defeat in the 1991 Gulf War. That autonomy was strengthened and formally recognised in the 2005 constitution.

Prime Minister Mohammed Shia Al Sudani with the President of the Kurdistan Region of Iraq, Nechirvan Barzani. Photo: Prime Minister of Iraq's Office

As Baghdad and Erbil failed to agree on a federal law to govern the oil and gas sector, the Kurdish authorities signed dozens of oil and gas deals with foreign companies and countries. Unlike other parts of federal Iraq, they offered lucrative production-sharing deals, which allowed international oil companies to rapidly recover costs and split profits between the government and the oil company.

The Kurds argued that Iraq's constitution gave them the right to sign agreements without consulting the Iraqi government, but Baghdad maintained that those deals were illegal as it did not approve them. The Kurdistan Regional Government ultimately passed its own oil and gas law, which Iraq has never recognised.

Since March last year, oil exports from the Kurdish Region through Turkey have been halted after an arbitration court ruled in favour of Baghdad, saying Ankara had breached a 1973 agreement when it allowed Kurds to pump without Baghdad's consent.

Both sides have failed to agree on different pending issues to resume exports, including the approval of the deals the Kurds signed with oil companies and a system for payment for the developers.

Former Kurdish president Massud Barzani, right, and former Iraqi president Jalal Talabani opened a ceremonial valve during an event to celebrate the start of oil exports from the autonomous region of Kurdistan, in 2009. AP

Last week, Iraq's cabinet approved plans that will allow the region to receive compensation for the costs of producing and transporting oil, in a significant move to ease the long-running oil dispute.

According to the plan, an international technical consulting body will be commissioned in agreement with the Kurdistan Region’s Natural Resources Ministry to calculate the “fair estimated costs for production and transportation for each field”, the statement issued by the cabinet said. If an agreement is not reached on the consulting company within 60 days, Baghdad will choose one, the cabinet added.

It also issued a decision for the “immediate commencement” of oil delivery produced in the region to the State Oil Marketing Organisation and the Federal Ministry of Finance will cover production and transport costs “as an advance” at a rate of $16 a barrel, to be reconciled retroactively after the completion of the assessment by the consulting company.

Mr Al Sudani and Mr Barzani also discussed the issues of salaries, Kurdistan's share of the federal budget and the resumption of the oil exports. Both sides “stressed the necessity of resuming oil exports at the earliest possible time and to work on overcoming all obstacles and issues that hinder the process”.