Iraq's Kurds seek greater clout through oil policy

BAGHDAD (AP) ? Iraq's minority Kurds are upping the ante with their go-it-alone oil policy, luring some of Big Oil's biggest players and again challenging Iraq's central government to a showdown over a shared export route.

It's a risky gamble. The Kurds' handling of the crude beneath their self-ruled territory is deepening a longstanding rift with Baghdad. It also threatens to drive a wedge between Iraq and neighboring Turkey, even as Syria's nearby civil war challenges old regional alliances.

The Kurdistan Regional Government this week restarted oil exports through a pipeline controlled by Baghdad after halting them for months over a payment dispute. Some oil industry observers see it as a sign of goodwill by the Kurds. Given current oil prices, it's also a $9 million a day trial balloon to see how far they can press their luck.

"The Kurds are ... once again showing that they can use oil to pressure Baghdad," said Iraqi political analyst Hadi Jalo.

The Kurds plan to ship 100,000 barrels a day for now to test Baghdad's willingness to make good on what the Kurds say are overdue payments related to a 2011 compromise deal. That tentative agreement calls for Baghdad to sell Kurdish-produced oil through the pipeline. Each side takes half the revenues.

The Kurds stopped shipments in April, claiming Baghdad failed to hand over their share of the sales. Baghdad in turn accused the Kurds of withholding billions of dollars in unreported oil payments and of smuggling oil out of the country.

If this week's gambit pays off, Kurdish Minister of Natural Resources Ashti Hawrami says export volumes could be increased. But if Baghdad does not release back payments the Kurds demand, he is threatening to shut the taps again at the end of the month.

Iraqi Oil Ministry spokesman Assem Jihad said a government committee is working on ways out of the crisis. "We hope that all the problems will be resolved," he said.

Kurdish leaders have a reason to feel empowered. Four of the world's ten biggest international oil companies have now signed up to hunt for oil in their mountainous northern region.

The deals and dozens of others infuriate Baghdad, which deems them illegal. The central government believes the Kurds have no right to sign unilateral agreements with foreign oil companies and wants exports to travel through state-run pipelines. The Kurds say Iraq's constitution allows them to sign deals on their own.

Oil companies are willing to gamble on the Kurdish region, which holds up to 45 billion barrels in reserves, because the terms there are more generous than Baghdad's. Far better security and rapidly improving infrastructure are other draws.

Exxon was the first oil giant to defy Baghdad and sign on with the Kurds last year, joining several mostly small and mid-sized firms. Baghdad responded by banning it from Iraq's fourth post-war bidding round but did not touch the Irving, Texas-based company's prized stake in the country's 8.6-billion-barrel West Qurna-1 oil field.

Its competitors took that as a green light to pursue deals of their own. San Ramon, Calif.-based Chevron Corp., Total S.A. of France and Russia's Gazprom Neft have all forged Kurdish exploration deals since mid-July.

Gala Riani, head of Middle East analysis for the consulting firm Control Risks, said the oil majors' Kurdish debut "certainly strengthens the Kurds' hands."

"Each case sets a precedent showing that companies are willing to take on the risk of being penalized by Baghdad," she said.

Besides, it would be legally difficult to expel companies such as Exxon that are already working in Iraq's south, and any expulsion would create logistical headaches for the companies' remaining exploration partners, said Robin Mills, head of consulting at Manaar Energy Consulting & Project Management in Dubai.

"Interruptions to Exxon Mobil's West Qurna-1 in particular would be a severe blow to Baghdad's production growth plans," he added.

Still, Baghdad authorities for now have the upper hand so long as they control Kurdish exports, Mills believes.

That could change.

The Kurds have reached out to Iraq's northern neighbor Turkey about setting up export pipelines that would bypass routes controlled by Baghdad. Last month they began exporting directly to Turkey, bartering oil and gas for refined fuel meant for local consumption.

A furious Baghdad responded by accusing Turkey of "participating in the smuggling of Iraqi oil." From its standpoint, Turkey's growing energy ties with Iraq's Kurds amount to yet another slight by Ankara.

Relations between the two countries turned particularly sour after Iraq's fugitive Sunni vice president, Tariq al-Hashemi, who is wanted on terrorism charges, first sought refuge in Iraq's Kurdish north and then traveled onward to Turkey. Al-Hashemi calls the charges politically motivated.

The deteriorating security situation in Syria, which like Turkey has its own Kurdish minority, only complicates matters. Shiite-led Iraq has been reluctant to join predominantly Sunni Turkey in pushing for the removal of Syrian President Bashar Assad, a member of the minority Alawite sect, an offshoot of Shiite Islam.

But Iraq's Kurds are increasingly throwing their support behind Turkey and its Sunni Gulf Arab allies in seeking Assad's ouster, according to analyst Jalo.

"The Kurds think that they should bet on the winning horse, which in this case is the Sunni alliance. This will worsen relations with Baghdad," he said.

The president of Iraq's autonomous Kurdish region, Massoud Barzani, "thinks that by siding with Turkey and the Gulf states, he might be rewarded by stretching his influence and power to the Kurdish areas in northern Syria," Jalo added.

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Associated Press writers Sinan Salaheddin and Sameer N. Yacoub contributed reporting.

Source: http://news.yahoo.com/iraqs-kurds-seek-greater-clout-oil-policy-170937589--finance.html

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