Iraq's federal government still in talks with KRG over its independent energy sector: deputy PM

Iraq's federal government is still talking with the Kurdistan Regional Government about resolving a standoff over its independent oil and gas sector, the deputy prime minister said June 18, as the semi-autonomous region announced plans to set up its own marketing and exploration companies.

"We have to recognize there is an issue here and it has to be resolved in the interest of both parties," Ali Allawi, who is also finance minister, told reporters on the sidelines of the Iraq Energy Forum in Baghdad.

KRG spokesman Lawk Ghafuri said on June 17 that the region would establish two oil companies to oversee upstream exploration and sales, in a bid to organize its energy sector and stave off a potential takeover by the federal government.

The KRG "is now working to establish two oil companies: the first is named KROC, which is specialized in oil exploration, and a second named KOMO, which specializes in the export and marketing of oil from the Kurdistan region," Ghafuri tweeted on June 17.

KRG oil is currently produced through several agreements with private companies and is marketed by the regional government's Ministry of Natural Resources, independently of Iraq's federal oil sales, which are controlled by state-owned marketing company SOMO.

Federal court ruling

Tensions between Baghdad and Erbil have increased after Iraq's federal supreme court ruled on Feb. 15 that the 2007 oil and gas law in the Kurdistan region was unconstitutional.

The court ordered Erbil to hand over its oil and gas operations to the federal government in an escalation of a dispute over the KRG's independent energy exports, which officials in Baghdad have said are undercutting SOMO's own sales.

"We follow the rulings of the federal court," Allawi said," when asked about the federal government's views on the establishment of the two Kurdish companies. "We have to settle these issues before we can go forward."

A Baghdad court on May 19 acted at the request of the federal oil minister and issued summonses to IOCs operating within Kurdistan, including Addax, DNO, Genel, Gulf Keystone, HKN, Shamaran and Western Zagros.

The KRG's Ministry of Natural Resources on June 13 called the summonses "illegal actions."

On June 5, the KRG filed a civil suit against Iraqi oil minister Ihsan Ismaael, accusing him of intimidating the IOCs and interfering with their contractual agreements with the KRG.

Export constraints

A KRG delegation on June 6 also visited Baghdad to discuss the oil and gas dispute, but the meeting produced no outcome.

On June 12, the Iraqi oil ministry threatened to blacklist IOCs operating in Kurdistan from doing business in Iraq if they did not terminate their contracts with the KRG within three months.

The standoff with the KRG comes at a time when Iraq is struggling to boost its southern oil exports, which are hobbled by infrastructure constraints.

Iraq's federal exports, excluding flows from Kurdistan, dropped to 3.300 million b/d in May from 3.338 million b/d in April, SOMO figures showed.

Iraq's aging export infrastructure, which includes pipelines and mooring berths, needs costly maintenance as well investments to expand storage capacity, Allawi told the Iraq Energy Forum.

Iraq, which has a current oil production capacity of up to 5 million b/d, is still aiming to reach 6 million b/d capacity in five years' time, Allawi said.