April 18 (Bloomberg) -- Iraq’s Kurdish region has signed a landmark agreement with Turkey to supply it directly with oil and gas, two people familiar with the matter said.
The accord was signed last month when Turkey’s Prime Minister Recep Tayyip Erdogan met Iraqi Kurdish Prime Minister Nechirvan Barzani in Ankara, said the people, who asked not to be identified because the plans are private. Turkish Energy Minister Taner Yildiz, contacted via his press office, declined to comment, as did an Iraqi Kurdish official. The Oil Ministry in Baghdad didn’t immediately respond to a request for comment.
The Kurdish government will sell oil and gas directly to Turkey in a deal that so far has bypassed the Iraqi government in Baghdad, which has warned the Kurds not to sign separate energy accords. Turkey may also take the Kurdish government’s stake in concessions operated by Exxon Mobil Corp. on the enclave’s border with the rest of Iraq, one of the people said.
“Large-scale oil exports would change the economic position of Kurdistan,” said Robin Mills, head of consulting at Dubai-based Manaar Energy Consulting and Project Management. “If this deal goes through, it’s an aggressive move by Turkey that really means busting relations with Baghdad.”
Iraq’s deputy prime minister, Hussain al-Shahristani, said April 16 that his government has told Turkey that it doesn’t allow oil agreements without central government approval, and that Turkey must respect Iraqi sovereignty.
The agreement is “illegal and is a violation of the wealth of the Iraqi people,” Furat al-Sharaa, a member of the Iraqi parliament’s oil and gas committee and a lawmaker from Prime Minister Nouri al-Maliki’s coalition, said by phone from Baghdad today. Turkey is “taking advantage of the unstable political situation in Iraq to broker agreements with the Kurdistan Regional Government and this is discourteous.”
The accords also spell a windfall for oil and gas companies such as Genel Energy Plc, the largest producer in the Kurdish region. Genel Chief Executive Officer Tony Hayward said last week that he expected a new pipeline transporting oil from the Kurdish region to Turkey to be finished by midyear.
In the absence of a pipeline, Genel has trucked crude into Turkey for sale on international markets, and it also sells inside northern Iraq. Patrick d’Ancona, a spokesman for Genel, declined to comment on the agreement.
Genel shares have added 8.1 percent in the past two months, even as Brent crude prices dropped 16 percent. They fell 0.3 percent to 811 pence at 3 p.m. in London today.
The Kurdish regional government in northern Iraq signed a production-sharing agreement with Exxon Mobil in 2011. It covered six blocks, the region’s oil minister Ashti Hawrami said in November that year, including Qara Hansher in the disputed region where the Kurdish enclave borders the rest of Iraq.
The Kurdish area could export 250,000 barrels of oil a day this year and that may increase to 1 million barrels by 2015 and 2 million by 2019, Hawrami said this month. “We believe a decentralized oil policy and the sharing of power and wealth is essential to Iraq’s unity,” he said.
A deal with Turkey would make the Kurds less dependent on the Iraqi budget. That’s long been a point of contention between Baghdad and Erbil, the northern capital and base for a semi-autonomous Kurdish administration since after the 1991 Gulf War.
“Oil is linked to nationalism,” said Aziz Sardar, a visiting lecturer in Middle Eastern studies at University College Cork in Ireland. “Barzani is using it to secure his position and mobilize people, who see it as a way to independence.”
For Turkey, the accord offers access to cheaper energy that would reduce its import bill and current-account deficit, the $800 billion economy’s key weakness.
The deficit ballooned to about 10 percent of economic output in 2011, exceeding $77 billion and ranking as the world’s second-biggest after the U.S. Last year Turkey imported $59 billion of energy, Deputy Prime Minister Ali Babacan said in January.
“Turkey’s current account deficit might improve by $10 billion to $20 billion a year in the coming period, probably starting from 2014,” in the event of a Kurdish energy deal, Ozgur Altug, chief economist at BGC Partners Istanbul unit, said in e-mailed comments.
In recent years Turkey has reversed its earlier hostility to autonomy for Iraqi Kurds and moved toward an alliance. It had previously cited concerns that self-rule in northern Iraq would encourage Turkey’s own Kurdish minority to demand similar rights.
The government this year has opened peace talks with Kurdish militants who have been fighting in southeast Turkey for almost three decades.
Iraq has the world’s fifth-largest crude reserves, according to data from BP Plc, and it revised its estimate upward last week by almost 5 percent to 150 billion barrels. It produced 3.2 million barrels a day in March, data compiled by Bloomberg show. The Kurdish region holds an additional 45 billion barrels, according to the KRG.
“Northern Iraq is keen on using its oil and gas to secure its economic future and autonomy from the central Iraqi government,” Altug said. Turkey is the only country in the region that can be the homeland of northern Iraqi energy,” and Kurdish reserves are “larger than Turkey’s total energy need.”