Article from: “Kurdistan Halts Oil Exports ” by Timothy Williams on NYTimes October 12, 2009 | Photo: Azad Lashkari/Reuters
The semi autonomous Kurdish region has reopened a rift with the central government after announcing that it had halted all petroleum exports from Kurdistan until Baghdad pays the international companies that are pumping oil in the region.
The Iraqi government has refused to recognize the contracts of foreign companies operating in fields like Tawke in Kurdistan.
Oil extracted in Kurdistan can be exported only through Iraqi government pipelines running to Turkey, giving Baghdad a stranglehold on the transport of oil produced there. At the same time, the government needs all the revenue it can get to pay for a host of pressing needs.
The amount of oil involved currently, about 100,000 barrels a day, is relatively small compared with Iraq’s total production of 2.4 million barrels a day. But with production from the Kurdish areas likely to increase markedly in coming years, the dispute has taken on added importance.
Kurdistan’s minister of natural resources, Ashti Hawrami, said in a letter dated Oct. 9 and posted on the Kurdish government’s Web site Monday that the decision to stop exports had been made in concert with the two international companies now extracting oil there.
“We have jointly agreed that no free oil will be pumped for export, and payments have to be made,” Dr. Hawrami wrote in the letter. “We will only resume exports with guaranteed payments.”
Kurdistan has awarded more than 30 contracts to international oil companies during the past few years over the objections of Baghdad, which has barred international companies working in Kurdistan from competing for oil contracts in the rest of Iraq.
Kurdistan began signing its own deals with foreign oil companies after becoming impatient with the central government’s inability to adopt a national oil law that would regulate the industry. The Iraqi Parliament still has not approved an oil law, but earlier this year Baghdad began seeking oil production deals of its own with international companies, including a preliminary agreement with a consortium of British Petroleum and the Chinese National Petroleum Company to develop the enormous Rumalia field in southern Iraq.
After DNO, a Norwegian company, and Genel Energy, a Turkish company, struck oil at the Tawke field in Kurdistan this year, Baghdad originally refused to export their production over its pipelines. The cash-poor government eventually relented, however, giving its approval in late May.
Exports from Tawke and from a second site in Kurdistan, at the Taq Taq field, started June 1, but Baghdad has refused to pay the companies for the oil because it continues to regard their contracts with Kurdistan as illegal.
Meanwhile, officials in Kurdistan said they could not afford to pay because revenue from the fields went directly to Baghdad.
DNO has a 55 percent share in the Tawke field; Genel Energy owns 25 percent; the remainder is owned by the Kurdish government.
Dr. Hawrami, who oversees Kurdistan’s oil sector, said the Norwegian and Turkish companies, which had invested $500 million in Kurdistan, had not received a penny so far for their exports.
Khalid Saleh, an adviser to Hussain al-Shahristani, Iraq’s oil minister, confirmed Monday that oil exports from Kurdistan had stopped. He said the government had no plans to abide by the terms of the Kurdish contracts.
“At this moment, the government is not willing to pay…” he said.
Dr. Hawrami also acknowledged in the letter a complex web of financial arrangements that the Kurdish government had with the two companies, including secret government investments and loans of as much as $50 million.
The deals, which were negotiated with the permission of the president of Kurdistan, Masoud Barzani, were intended to bolster the financially strained oil companies so they could continue exploration in Kurdistan, according to the letter.
Duraid Adnan and Sa’ad al-Izzi contributed reporting.