Iraq Threatens to Cut Revenue to Kurds Over Pipeline

Iraq threatened to cut oil revenue to the Kurdish north in a deepening standoff over a new export pipeline that companies from DNO International ASA (DNO) to Genel Energy Plc (GENL) plan to use to ship crude from the region.

The government in Baghdad may refuse to give the 17 percent of annual earnings from oil sales allocated to the semi-autonomous Kurdish provinces if they bypass central authorities and start operating a link through Turkey by year-end, Hussain al-Shahristani, deputy prime minister for energy affairs, said in an interview in Dubai yesterday.

“We have our options, and you will hear them when we adopt measures, as this is a big loss for Iraq,” he said. “No Iraqi would accept that they take 17 percent of Iraq’s revenue from crude produced outside of Kurdistan and at the same time all of the revenue of the crude produced in Kurdistan.”

The Kurdistan Regional Government halted crude exports through the government-run pipeline in December amid a dispute with the Oil Ministry in Baghdad over the sharing of crude sales revenue and payments owed to companies such as DNO and Genel Energy. The Kurds, who are building export pipelines as a step toward self-sufficiency, estimate their oil reserves at 45 billion barrels.

The Iraqi government insists that the Kurds link their new crude export pipeline to the main government pipe at a metering station near the Turkish border, Shahristani said.

“They refused and said they want to link it after the metering station to prevent the Iraqi government from knowing the quantity of crude they are exporting,” he said. “The real problem is that they don’t want anyone to know how much they are producing and selling.”

‘Serious Error’

Exxon Mobil Corp. (XOM) made a “serious error” by signing a contract to explore for oil in the Kurdish region without the approval of the central government, Shahristani said. For this reason, Iraq is demanding that Exxon and other foreign companies quit their business in fields controlled by the central government, he said.

Iraq, home to the world’s fifth-largest crude reserves, is producing 3.3 million barrels a day and last month exported 2.58 million barrels a day, Shahristani said. That output will increase by 400,000 barrels a day by year-end and will exceed 5 million within three years, he said. Export capacity will exceed 6 million barrels a day once four offshore plants are operating next year and terminals in the south are upgraded, he said.

“We have plans for five single-point mooring facilities: one as spare and four for simultaneous pumping, each with a capacity of 900,000 barrels a day,” he said. Once the four mooring units are operational at the start of next year, the government plans to suspend activities at the onshore Basra oil terminal to expand it. The nearby Khor al-Amaya terminal will be upgraded later, he said.

Iraq’s reserves of 150 billion barrels, which don’t include the Kurdish north, rank behind Venezuela, Saudi Arabia, Canada and Iran, according to the BP Statistical Review of World Energy published in June.

To contact the reporter on this story: Nayla Razzouk in Dubai at nrazzouk2@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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