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Iraq blocks "illegal" Kurdish gas-export deal

THE GOVERNMENT in Baghdad has rejected a deal between the semi-autonomous Kurdistan Regional Government (KRG) and Germany's RWE that would have allowed for exports of gas to Europe

The oil ministry in Baghdad says all sales contracts signed without the authority of the State Oil Marketing Organisation are "illegal", a decision that could end the hopes of RWE and the KRG to export up to 20bn cubic metres a year (cm/y) from Kurdistan to Europe.

At the end of August, the KRG and RWE signed a deal covering construction of a domestic and export gas system, creating a route to market for the region's reserves, most notably to Europe through the prospective Nabucco project. RWE is a shareholder in the Nabucco consortium, which aims to import up to 31bn cm/y of Mideast and Central Asian gas into central Europe.

Gas from the Khor Mor and Chemchemal fields in Kurdistan, operated by the UAE's Dana Gas, would account for the bulk of Nabucco's capacity. Yet the pipeline's progress has so far been undermined by a lack of confirmed gas sources to justify construction.

With Iranian gas imports blocked for political reasons, and supplies from Central Asia requiring substantial new infrastructure, Austria's OMV, which leads the Nabucco consortium, has said Iraqi gas would be crucial to the project. Ashti Hawrami, the KRG's minister of natural resources, says that exploration in the province could prove gas reserves of around 6 trillion cm. OMV and Hungary's Mol, another Nabucco consortium member, have a combined 20% stake in Pearl Petroleum, a joint venture with Dana Gas and Crescent Petroleum, for the development of Khor Mor and Chemchemal.

The Iraqi oil ministry has consistently said that deals signed by the KRG with international companies are illegal. In 2009, production-sharing contracts with Norway's DNO and Turkey's Genel Enerji were threatened by this stance, and exports from the Taq Taq and Tawke oilfields were stopped.

To feed the Nabucco pipeline, Kurdish gas would be piped to Sivas in Turkey. The KRG could yet proceed without Baghdad's approval – provided Turkey agrees to accept the transit of the gas through its territory. And that could yet happen. In addition to significant transit fees it would earn, Turkey has a strong relationship with the KRG, and private-sector Turkish firms, which make up 60% of the foreign companies active there, have invested more than $0.6bn in the region to date.

But the government in Baghdad is deploying other sanctions to force the KRG's hand. After opposing the RWE deal, the oil ministry said it would halve the amount of Iraqi fuel oil and kerosene that enters Kurdistan. Ostensibly, this measure is designed to limit the alleged smuggling of fuel across the Kurdish border into Iran, where international sanctions have yielded a shortage of refined products. But the move is also a calculated blow against the KRG in response to its RWE deal.

Relations between the central government and the KRG have suffered since US forces started to pull out of Iraq in August. Among the sore points is the KRG's claim to the city of Kirkuk, home to one of Iraq's largest oilfields. A power vacuum in Baghdad since Iraq's parliamentary elections in March, which left no agreed leadership in place, has also emboldened the KRG. Violence in the south of Iraq as US forces withdraw could strengthen the position of Kurdistan – which is relatively peaceful – still further.

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