Oil companies seek US mediation to defuse Iraq-Kurdistan tensions

A flame rises from a chimney at the Taq Taq oilfield in Erbil, Kurdistan region of Iraq August 16, 2014. REUTERS/Azad Lashkari

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  • The economy of semi-autonomous Kurdistan in danger
  • Turkey may need more Russian and Iranian crude
  • Relations soured after February court ruling

Sept 1 (Reuters) – Oil companies operating in Kurdistan have asked the United States to help defuse rising tensions between Iraq’s central government and the semi-autonomous region, according to a letter seen by Reuters and three sources.

They say intervention is needed to ensure oil continues to flow from northern Iraq to Turkey to avoid Turkey having to increase oil shipments from Iran and Russia .

They also say that the Kurdistan Region (KRI) economy could collapse if it loses its oil revenues.

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Relations soured in February when the Iraqi federal court ruled unconstitutional an oil and gas law regulating the oil industry in Iraqi Kurdistan.

Following this decision, the Iraqi federal government, which has long opposed the Kurdistan Regional Government (KRG) independently exporting oil, has intensified its efforts to control the export revenues of Erbil, the capital of the KRI.

Ahead of the ruling, Dallas-based HKN Energy wrote to US ambassadors in Baghdad and Ankara in January requesting mediation in a separate 2014 case involving the Iraq-Turkey Pipeline (ITP), a copy of the letter seen by Reuters shows.

Baghdad claims Turkey violated the ITP agreement by allowing KRG exports – which it deems illegal – through the pipeline to the Turkish port of Ceyhan.

Turkey’s energy ministry did not respond to a request for comment.

The final hearing in the case took place in Paris in July and the International Chamber of Commerce will issue a final decision in the coming months, Iraq’s Oil Ministry said.

Turkey’s next steps remain unclear should the court rule in favor of Iraq, an outcome deemed likely, according to three sources directly involved.

At least one other oil company has engaged at senior levels with four direct and indirect stakeholder governments to encourage engagement, a company representative told Reuters, speaking on condition of anonymity.

Other KRI operators Genel Energy (GENL.L) and Chevron declined to comment on the arbitration case, while DNO and Gulf Keystone did not immediately respond to a request for comment.

RISK BARRELS

In addition to demanding that Turkey get more crude from Iran and Russia, a cessation of oil flows through the ITP would cause the KRI economy to collapse, according to HKN’s letter to US officials.

Neither the KRG’s Natural Resources Ministry nor the Oil Ministry in Baghdad responded to a request for comment.

Already, Iraq is not taking full advantage of high oil prices, which hit 14-year highs after major oil exporter Russia invaded Ukraine in February and they remain near $100 a barrel. .

ITP has the capacity to pump up to 900,000 barrels per day (bpd) of crude, or about 1% of daily global oil demand, from state oil trader SOMO as well as KRG.

For now, it is pumping 500,000 bpd from fields in northern Iraq, which will struggle to increase production further without new investment.

Analysts said companies would pull out of the Kurdistan region unless the environment improves.

Already many foreign companies have lost interest.

They first arrived in Kurdistan during the era of former Iraqi President Saddam Hussein, when the region was considered more stable and secure than the rest of Iraq.

As security deteriorated, the handful of remaining small and medium-sized businesses also sought U.S. engagement to help deter attacks on energy infrastructure and improve overall security.

The companies gave their support to letters written by members of the US Congress to Secretary of State Antony Blinken sent in August, according to sources directly involved in the matter. They asked not to be named due to the sensitivity of the issue.

The letters urged high-level engagement with Erbil and Baghdad to safeguard the stability of the KRI economy and to ensure that Iraq is free from Iranian interference.

INTEREST US TEPID

State Department spokesman Ned Price said Aug. 16 that differences between Baghdad and Erbil were between the two sides, but that the United States could encourage dialogue.

The State Department summoned the American law firm Vinson & Elkins, which represents the Iraqi oil ministry in Baghdad, for a briefing in Washington on the ITP dispute in July.

Two other briefings should take place in Baghdad and Washington, according to a source familiar with the matter.

“Baghdad would certainly welcome US statements to the KRG leadership that it should follow Iraqi constitutional arrangements for the oil industry in Iraq,” said James Loftis, partner at Vinson & Elkins.

The US State Department declined to comment, but industry experts say US intervention is unlikely and, in any case, may not help.

“The United States has disengaged from Iraq for the past decade. No amount of pressure from Washington or other governments will resolve the issues between Baghdad and the Kurds,” said Raad Alkadiri, chief energy officer. , climate and sustainability at Eurasia Group.

A Kurdish official told Reuters in August that the KRG had asked the United States to increase its defense capabilities, but said there was no hope because the priority of the United States was to revive the 2015 nuclear deal with Iran.

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Reporting by Rowena Edwards in London; additional reporting by Amina Ismail in Erbil, Simon Lewis in Washington and Can Sezer in Istanbul; edited by Barbara Lewis

Our standards: The Thomson Reuters Trust Principles.

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