Kurds May Halt Crude Exports If Iraq Withholds $1.5 Billion

Crude exports from Iraq’s semi-autonomous Kurdish region dropped to 50,000 barrels a day and may cease in a month if the central government refuses to pay about $1.5 billion owed to producers, Kurdish authorities said.

The Kurdistan Regional Government also called today on foreign companies including BP Plc not to make separate agreements with Iraq’s central government to develop oil fields in and around the disputed northern city of Kirkuk. The central government has said it is talking with BP about boosting output at a field called Kirkuk, near the same city.

A dispute over oil revenues between Iraq’s government and Kurdish authorities led to a yearlong halt in exports from the region that ended in February 2011. Iraq holds the world’s fifth-biggest crude reserves, based on BP statistics that also include Canadian oil sands, and it seeks to boost oil exports to help rebuild an economy recovering after years of conflict, sanctions and sabotage.

“This latest chapter in the protracted struggle between the central and regional government puts something of a downer on the realization of Iraq’s vast crude export potential,” JBC Energy GmbH, a Vienna-based consultant founded by Managing Director Johannes Benigni, said in a note today.

Kurdish Potential

The Kurdish Ministry of Natural Resources cut its oil exports from 175,000 barrels a day “because of the production costs and the re-investments needed by the producing companies in the region,” according to a statement on the official KRG website. The Kurds are targeting 175,000 barrels a day, as specified in the Iraqi federal budget, and could export “significantly more” if the central government in Baghdad fulfills commitments to pay companies pumping crude at Kurdish fields, the KRG said.

The Kurds export crude through a pipeline controlled by the central government, which paid producers in the Kurdish region a total of $514 million last year, according to the statement.

“We still remain hopeful that the authorities in Baghdad will realize the damage being caused to Iraq’s economy by their continued failure to comply with their commitments,” the KRG said.

The Iraqi Finance Ministry has allocated 650 billion dinars ($558 million) in the government’s annual budget for payments to foreign companies working in the Kurdish region, and it will release the funds upon completion of an official audit, Finance Minister Rafih Al-Issawi said.

Halt Not Feared

“We do not fear the halt of crude exports from the Kurdistan Regional Government,” he told reporters in Baghdad today, without elaborating.

BP is in talks aimed at raising production at the Kirkuk field by 300,000 barrels a day, more than double the deposit’s current output, Hussain Gholam, the deputy director general of Iraq’s North Oil Co., said in a March 22 interview.

The Kurdish ministry, in a separate statement on the KRG website, said the central government doesn’t have exclusive authority over Kirkuk or any other oil field. Developing the nation’s energy deposits requires the approval of regional governments, the KRG said.

The central government refuses to do business with companies working in the Kurdish region. It said on March 22 that Exxon Mobil Corp. had agreed to freeze business the company had arranged with the Kurds.

Iraq produced 2.76 million barrels a day of crude in February, according to data compiled by Bloomberg. Most of the output comes from southern fields. The central government, which expects to pump 3.4 million barrels a day by the end of the year, has awarded 15 energy licenses since the 2003 U.S.-led invasion that ousted former President Saddam Hussein. It plans a new licensing round in May.

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