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Published: Thursday June 26, 2014 MYT 7:25:01 AM
Updated: Thursday June 26, 2014 MYT 7:25:01 AM

With new grip on oil fields, Iraq Kurds unveil plan to ramp up exports

ARBIL Iraq (Reuters) - Iraq's self-ruling Kurds outlined plans on Wednesday to swiftly ramp up oil exports now that their forces have taken control of Iraq's main northern oilfields, a move that could tear up the settlement holding Iraq together since the fall of Saddam Hussein.

Kurdish Natural Resources Minister Ashti Hawrami told Reuters the Kurds had plans to increase their exports eightfold by the end of 2015, including by pumping oil from the fields taken by Kurdish fighters two weeks ago.

"We expect to be able to export 1 million bpd by the end of next year, including crude from Kirkuk," he said, although he insisted the Kurds would share the proceeds with Baghdad.

"We want to work with Baghdad under the constitution, and they will get their share of the oil they export from Kirkuk."

The central government in Iraq firmly opposes Kurdish oil sales, saying they violate the constitution. Increasing exports to such levels would radically alter the balance of power in Iraq, potentially requiring the central government to seek payment from the Kurds for some revenue, rather than the other way around.

Two weeks ago Kurdish peshmerga troops took control of Kirkuk - a city Kurds consider their ancestral capital - and outlying rural areas rich in oil, expanding their territory by more than a third.

The Kurds say they were filling a security vacuum after Iraqi troops fled from Sunni fighters of the hardline Islamic State in Iraq and the Levant, who seized Mosul, the biggest city in northern Iraq, at the start of a lightning offensive on June 10.

Hawrami told Reuters the fall of Mosul had transformed Iraq, suggesting this would require a new settlement over oil rights.

"Resources and revenues must be shared. But pre-Mosul Iraq has gone and there is now a new reality," Hawrami said during an interview at his office near the Kurdish regional parliament.

"We will not be dictated to by some people in Baghdad who want to centralise power, to bully and intimidate. We need a real federal system based on power sharing and revenue sharing."

Hawrami said fuel shortages in Iraqi Kurdistan created by the ISIL-led offensive should ease in the next couple of months as the Kurdish government takes steps to liberalise a part of the market and help increase imports of gasoline and diesel.

DEAL UNRAVELS

Iraq's Kurds have prospered since the fall of Saddam in 2003 while ruling themselves under a settlement which provided for all Iraqi oil to be sold by the government in Baghdad and the Kurdish region given a fixed percentage of the total income.

But that deal has unravelled this year after the Kurds began pumping their own smaller amounts of oil to port in Turkey and the central government cut off their share of budget funds. A tanker of crude from Iraqi Kurdistan was recently delivered into Israel. The Kurds deny selling oil to Israel.

The 125,000 barrels of oil per day the Kurds have so far been able to pump abroad provides only a fraction of the money they have received in the past from Baghdad, but control of the oil fields in Kirkuk could bring a much larger windfall.

U.S. Secretary of State John Kerry visited the Kurdish capital Arbil on Tuesday to urge the Kurds to support an inclusive government in Baghdad. But privately some Kurdish officials suggest they are finished with Iraq and are waiting for an opportunity to break free, with control over most of the oil in northern Iraq making that easier to envision.

Western oil firms have rushed to do business with the Kurds, defying blandishments from Baghdad, which says any such deals are illegal. About 20 Western energy executives were waiting to meet Hawrami on Wednesday when Reuters visited his office.

Iraq's northern oil fields around Kirkuk have been cut off from exports for months because Sunni insurgents have destroyed the main pipeline to Turkey and threatened any engineers sent to fix it.

Hawrami said the only reliable way to resume exports was to hook up Kirkuk to the separate pipeline operated and guarded by the Kurds.

"We agreed with the North Oil Company and Baghdad to link the three domes at Kirkuk and other adjacent fields to our export pipeline about three months ago, and the construction of the pipeline is already completed. It needs to be tested and commissioned, but it should not take much time," Hawrami said.

"Baghdad agreed to link into our line as their own pipeline has been sabotaged so many times. It is now in territory wholly controlled by insurgents, and even if they could get it back it would take 6-12 months to repair it as it has been so badly damaged," he said.

He added that the Kurds would not act on their own: "We need to have an agreement with Baghdad. We’re not going to start exporting oil from Kirkuk unilaterally."

Hawrami said exports could double "within a month or so" to around 250,000 bpd and hit 400,000 bpd by the end of 2014.

The Kurdish export pipeline has a capacity of 300,000 bpd but could be quickly expanded with a few minor tweaks and additional pumping stations, he said, dismissing the idea that threats from Baghdad would keep firms from buying Kurdish oil.

"Oil companies and governments around the world are now showing increasing interest in buying our crude. Many have already done so," he said.

"Baghdad made the same threats when the big energy companies first wanted to come and work here," Hawrami said. "We know how this plays out."

(Editing by Peter Graff and Mohammad Zargham)

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