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Iraq: Kurds near oil-export deal, but federal approval still awaited

OIL EXPORTS from Iraqi Kurdistan are in a position to restart, following an interim agreement between semi-autonomous Kurdistan Regional Government (KRG) and the oil ministry in Baghdad

Iraq's cabinet ratified on 18 May a deal that would see the finance ministry pay the oil-production costs of IOCs operating in Iraqi Kurdistan. But oil ministry officials say the government will not allow them to receive profits. The provision of profit would imply Baghdad's approval of the production-sharing contracts (PSC) signed between private-sector companies and the KRG. The government regards these PSCs as illegal.

The KRG did not provide an indication if it would accept this new compromise deal, though encouragingly, the Erbil-based KRG leadership and central government at least appear to agree on the terms for the resumption of crude exports from Kurdish regions, which were halted in October after oil minister Hussein al-Shahristani said the two sides should agree a mechanism on sharing oil revenues before sanctioning pipeline exports from the north.

The two sides have also been in dispute over the KRG's right to award oil and gas contracts to international oil companies, with the oil ministry demanding final approval of any deals struck with foreign firms.

Details of the terms of the interim deal have not been made public, but are understood to centre on a proposal to provide all oil revenues to the Baghdad-based State Oil Marketing Organisation, with the central government then recompensing oil companies for all expenses incurred in extracting and exporting Kurdish-sourced crude. These terms were reportedly mapped out during meetings between officials in May.

The cabinet's approval of the interim deal suggests the incumbent administration of prime minister Nouri al-Maliki is seeking to form a coalition with the Kurdish parties after an inconclusive outcome to March's national elections.

A recount of 2.5 million disputed votes in May has confirmed that Allawi's Iraqiya bloc, heavily supported by Sunni Arab voters, won 91 seats, ahead of the Shia State of Law coalition led by Maliki, which won 89. However, Maliki has been negotiating to form an alliance with another Shia group, the Iraqi National Alliance, which would allow it to form a majority governing coalition.

The absence of political consensus inside Iraq looks set to prove a continuing stumbling block towards upstream progress.

Norway's DNO, which is looking to pump 50,000 barrels a day from its Tawke field in Kurdistan, has given no guidance as to when it expects exports to restart. In the meantime, DNO will continue to focus on local sales until a payment deal for exports gains official approval.

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