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Iraq Kurd oil exports may remain victim to political strife despite deal

By BEN LANDO, UPI Energy Editor   |   Dec. 5, 2008 at 4:07 PM   |   Comments

BAGHDAD, Dec. 5 (UPI) -- While two companies are technically prepping their northern Iraq oil fields for exports to Turkey, political disputes between the central Iraqi government and the Kurdistan Regional Government remain.

Eleven days after the Iraqi oil minister traveled to the KRG capital, Erbil, for meetings with the region's prime minister and oil minister, both sides have continued firing warning shots in the debate that has continued for more than a year on Kurdish oil contracts with international oil companies.

During the visit, the ministers announced an agreement to allow oil from two deals to be exported and to continue dialogue over the rest. Baghdad says only the central government has the right to sign oil deals, in a difference of interpretation of the 2005 constitution with the KRG, the semiautonomous three-province region in northernmost Iraq.

"We are in serious discussion with the KRG about several issues," Iraqi Oil Minister Hussain al-Shahristani told reporters Friday following a speech at an oil and gas conference, "but the position vis-a-vis the contracts the Kurds sign without going through the central government remains unchanged. Those contracts have no standing with the Iraq government."

One day earlier KRG Prime Minister Nechirvan Barzani told a news conference, "Let Shahristani say what he wants to, since all the oil contracts of the Regional Government are legal and signed according to the law and Constitution," the Kurdish Globe reports.

Ashti Hawrami, the KRG natural resources minister, told United Press International by phone Friday opponents should take the issue to the Constitutional Court if they wanted.

"We have a contractual right, a constitutional right, a legal right. Anybody has a complaint about that, they can … take us to court," he said. "Kurdistan oil is Iraqi oil."

The constitution calls for a new oil law that would determine government control over the oil development strategy. A Saddam-era law is in effect until then, which gives the power to the Oil Ministry with limited Parliament oversight.

The KRG claims references in the constitution referring to decentralized power allow it to pass its own oil law and sign deals on its own. A law was initially agreed upon in February 2007, but it has been slow in moving through the Council of Ministers and has just recently been taken up by Parliament.

Of the two dozen KRG deals, Shahristani says the four signed before February 2007 would be honored if they were brought in line with the law, with the others considered illegal. Two of the four -- with Norway's DNO and a joint venture between Turkey's Genel Enerji and Canada's Addax Petroleum -- are already producing oil, selling limited quantities to local refineries.

The KRG says once the pipelines are connected from the field to the northern Iraqi pipeline from Kirkuk to Ceyhan, Turkey, it can ramp up exports to an expected 250,000 barrels per day by the end of next year.

Iraq has the world's third-largest oil reserves and this year averaged the most production since 2003.

The federal Oil Ministry controls the pipeline and must give the OK to send oil into it, which in the past it has said it won't do. The two sides will have to determine how to make the production-sharing contracts -- giving private, international oil companies a stake in the oil field and a percentage of the oil proceeds -- work within a nationalized oil system in which government oil companies have total control. In essence, how would the international oil company recover its costs, and then some, when Iraq collects oil revenues and redistributes it to local governments based on an agreed upon percentage?

"We have agreed as a policy that export will commence as soon as they are technically able to connect to the pipeline," Hawrami said.

He added there is "nothing political; the politics (were) already decided" during Shahristani's visit in late November.

Politics in Iraq, however, are eternal: always present and evolving. Since the visit, Iraqi Prime Minister Nouri al-Maliki -- to whose political party Shahristani's bloc of independent politicians recently pledged allegiance -- has made his first public statement against the KRG oil deals, calling it unconstitutional. The KRG has replied with criticisms of a number of Maliki's moves and threatening to have the Iraqi Presidency Council -- which Iraqi President Jalal Talabani, a Kurd, leads -- take Maliki to the Supreme Court over a number of issues.

And now the Iraqi newspaper Azzaman reports an unnamed Oil Ministry official says the determination of collecting and paying out the oil earnings is a major sticking point, as is a continued backlash over the right of the KRG to sign oil deals, and could scuttle the pipeline access agreement.

"After we review the contract, and if that contract is, after amendments, acceptable and recognized by the government of Iraq, then that oil can be exported," Shahristani said Friday.

Abdul-Hadi al-Hasani, the deputy chairman of the Iraqi Parliament's Oil and Gas Committee and a member of Maliki's party, said on the sidelines of an oil conference this week in London that five Kurdish and federal government leaders have formed a new committee to find a solution to a number of ongoing disputes.

The committee includes Deputy Prime Minister Barham Saleh, a Kurd, and Vice President Adil Abdul-Mahdi, a member of the Islamic Supreme Council of Iraq, once a strong ally to Maliki's Dawa Party but recently siding with the Kurdish Coalition.

Hasani said the new committee will look at the two KRG deals producing oil and could find a resolution to the controversy over the other KRG deals, which will face a serious problem if they ever produce oil.

The committee has its hands full in tackling other key issues, including the percentage of Iraq's federal budget the KRG should receive and the disputed oil law.

Despite the rhetoric, there is progress in putting disputes to rest. Hasani said he expects a quick decision on the oil law and hopes the multi-partisan Parliament Oil and Gas Committee will begin an open debate this month.

In the meeting last week between Shahristani and KRG leaders, they decided to jointly develop the Khormala Dome of the massive Kirkuk oil field. The Iraqi army and KRG's peshmerga military have nearly come to blows twice in the 14 months over rights to do the work and produce oil. Among issues yet to be determined: how much of the oil from Khormala Dome will be sent to Turkey, and how much to a refinery in Erbil, the KRG capital.

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(e-mail: blando@upi.com)

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