Kurdistan begins exporting oil directly abroad

Financial Times (UK) Thursday, January 10, 2013, p. 3

By Guy Chazan in London

Iraq’s semi-autonomous region of Kurdistan has begun exporting oil directly to international markets, in an important step towards asserting its economic independence from Baghdad.

Mehmet Sepil, president of oil company Genel Energy, said it had received permission from the Kurdistan regional government (KRG) to start trucking some of the crude oil it produces at its Taq Taq field to the Turkish port of Ceyhan.

In an interview, he said the volumes were not large, partly because of bottlenecks in Turkish customs. « But we think we can reach 20,000 barrels a day within six to eight weeks, » he told the Financial Times.

The decision to allow exports marks a fresh escalation in the dispute between the KRG and the Iraqi central government over control of the northern region’s 45bn barrels of oil.

Kurdistan is already trucking some of its oil across the border into Turkey and receiving refined products in exchange under a barter agreement reached with Ankara last year. But this oil is owned by the KRG, unlike the crude exported under the new arrangements, which is owned by Genel and its partners in Taq Taq.

The Kurds have essentially been running their own affairs since the early 1990s, when the US-led coalition created a no-fly zone over the region.

But in recent years authorities in the Kurdish capital Irbil have infuriated the Iraqi government by signing a flurry of oil deals with international energy companies such as ExxonMobil, Total and Chevron – contracts Baghdad says are illegal.

The central government has retaliated by holding up payments for oil exported from Iraqi Kurdistan . These flow through a pipeline that runs from Kirkuk in the north through Turkey to the port of Ceyhan and is controlled by the Iraqi authorities.

Irbil and Baghdad reached a truce on September 13, with Baghdad agreeing to release the export payments and the KRG pledging to increase its shipments via the Kirkuk-Ceyhan pipeline.

But the deal has since broken down, with Iraq refusing to release a second tranche of funds, and the KRG halting exports in protest.

The dispute has been frustrating for companies operating in the region such as Genel and Norway’s DNO, which have grumbled about not being paid for the oil they produce. Trucking their oil across the Turkish border is a good interim solution.

« The best option for us would be if the September 13 agreement worked out, » said Mr Sepil. « Since that has now broken down, this is the next best thing. It is a good development for everyone. »

Analysts think Genel’s move could presage much more extensive exports from the region. Officials in Irbil have announced plans to build their own oil pipeline to the Turkish border, which, under current proposals, will tie into the existing Iraqi-controlled pipeline system. However, many think Irbil’s ultimate aim is to create a new export route directly into Turkey, circumventing Baghdad’s monopoly on oil shipments.