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Kurds upbeat over new Iraq oil-export deal

KURDISTAN may be on the verge of a breakthrough in persuading Iraq's central government to agree to the resumption of oil exports

FOLLOWING a top-level meeting between Iraqi prime minister Nouri al-Maliki and senior Kurdistan Regional Government (KRG) officials on 18 January, Kurdish prime minster Barham Salih tweeted that exports would resume on 1 February. If Salih's optimism is justified, around 100,000 barrels a day (b/d) of Kurdish exports could soon be flowing.

The deal hinges on an agreement in principle between the Iraqi oil ministry and the semi-autonomous KRG, under which the former will pay exploration costs and expenses to the international oil companies (IOCs) working in the northern Kurdish region – but not profits. However, no detail has been provided on how the deal would work in practice, raising concerns that the positive spin from the KRG may not be grounded in reality.

In May 2010, the central government agreed a deal with the Kurds, in expectation of a speedy resumption of Kurdish exports. Yet these were stymied by the failure to form a new government following indecisive March 2010 elections.

A statement issued by Salih's office says the deal on oil was part of a broader agreement to resolve all outstanding issues between the Iraqi government and the KRG, suggesting the formation of a new government in Baghdad is helping to smooth relations between the centre and the north

But there are still stumbling blocks to overcome. The government is adamant it will not pay profits to IOCs and, despite the appointment of Abdul-Karim al-Luaibi as oil minister in December – replacing the vehemently anti-KRG Hussein al-Shahristani – the government's position remains firm that production-sharing contracts signed independently by the KRG with IOCs are illegitimate.

The oil ministry maintains that IOCs' profits should be drawn from the KRG's share of the annual national budget. The draft national budget for 2011 calls on the Kurdistan region to export 150,000 b/d oil, or face a deduction from its 17% allocation of that budget. Technical discussions to be held between KRG and Iraqi officials may shed more light on the future fiscal arrangements.

If oil exports do resume from the Kurdish region, flows could reach 250,000 b/d by the end of the year, claims KRG natural resources minister Ashti Hawrami.

Exports from the Taq Taq field, operated by China's Sinopec with Turkey's Genel Enerji, and the Tawke field, operated by Norway's DNO, briefly flowed in 2009, but were halted when the Iraqi government refused to pay the companies. The KRG says these two fields could quickly bring on stream a combined 100,000 b/d, while fields operated by Gulf Keystone and Heritage Oil are primed to add up to 20,000 b/d in the near-term.

The next six months could be critical if Kurdish oil production is to affect Iraq's overall output – 2.44m b/d in December, according to the International Energy Agency. The KRG has set a deadline of June 2011 to finalise legislation on revenue sharing, after receiving assurances from prime minister Maliki that the formation of national hydrocarbons laws would be given priority by the newly formed government.

Optimism is rife after Salih's comments. DNO's share price felt an immediate uptick following the 18 January announcement, rising by 6% on the day. But long-term Iraq watchers will reserve judgement until IOCs are receiving regular payments for their efforts.

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