KRG starts independent crude oil exports

LONDON - Reuters

AFP Photo

The Kurdistan Regional Government (KRG) has begun to export crude oil directly to world oil markets through Turkey, industry sources said on Monday, which poses the biggest challenge yet to Baghdad's claim to full control over Iraqi oil.

The export of crude, in addition to small volumes of niche condensate, demonstrates the semi-autonomous region's growing frustration with Baghdad as it moves towards ever greater economic independence, the sources said.

The volume of oil involved is small, but industry sources said the direct export is highly symbolic as the KRG seeks more financial independence from Baghdad.

The first crude has been delivered by truck to the Turkish port of Mersin on the Mediterranean, shipping and industry sources said.

"The KRG gave us permission to start crude exports from the Taq Taq oilfield," Genel Energy President Mehmet Sepil said in an interview.

Control of oil is at the heart of a dispute between Iraq's Arab-led central government and the autonomous region run by ethnic Kurds in the north. Baghdad insists the central government has the sole constitutional right to export oil.

In an apparent renewed dispute over payment, the KRG halted shipments through the Baghdad-controlled Iraq-Turkey pipeline last month.

The KRG began exporting its own very light oil, or condensate, independently to world markets in October by truck to a Turkish port, where it was sold via an intermediary.

Now the Kurdish region is adding crude from the Taq Taq oilfield, where London-listed explorer Genel Energy has a stake, to its slate of exports.

A fresh cargo of condensate is also ready to sell through an imminent tender, said a shipping source.

Industry sources reckon around 15,000 barrels per day (bpd)of condensate from the Khor Mor gas field are reaching the Toros terminal in Turkey. Crude oil exports from Taq Taq, for now, are also small.

In exchange, Turkey is sending back refined products to the Kurdish region, which is short of fuel.

Over the past year and a half, KRG has upset Baghdad by signing deals directly with oil majors such as Exxon Mobil and Chevron, providing lucrative production-sharing contracts and better operating conditions than in Iraq's south.

The KRG says its right to grant contracts to foreign oil firms is enshrined in the Iraqi constitution, which was drawn up following the 2003 invasion that ousted Sunni dictator Saddam Hussein.

But payments to foreign operators in northern Iraq are getting caught up in the long-running spat over land and petroleum rights.

Baghdad said last month it would not pay oil firms operating in northern Iraq because the region had failed to export the volume of crude it pledged under a deal struck in September.

That agreement stipulated that northern Iraq would pump crude through the Baghdad-controlled Iraq-Turkey pipeline in return for payment.

An export target of 200,000 bpd was set for the last two months of 2012, and KRG authorities pledged to raise exports to 250,000 bpd in 2013.

But exports of northern Iraq oil have been halted since around mid-December, after nearing the 200,000 target early in the month.

Baghdad transferred an initial sum of 650 billion Iraqi dinars ($560 million) to the KRG. But a second payment is still pending for the foreign companies in northern Iraq.