LONDON — Kurdistan has begun to export crude oil directly to world markets through Turkey, posing the biggest challenge yet to Baghdad's claim to full control over Iraqi oil.
The export of crude, in addition to small volumes of niche condensate, demonstrates the autonomous region's growing frustration with Baghdad as it moves towards ever greater economic independence, industry sources said.
Iraqi officials in Baghdad said the trade of Kurdish oil, which they view as illegal, would make it more difficult to reach a deal on payments to oil companies operating in the northern region, which the central government has delayed.
The volume of Kurdish oil involved is small, but industry sources said the direct export is highly symbolic as the Kurdistan Regional Government (KRG) seeks more financial autonomy.
The first crude has been delivered by truck to the Turkish port of Mersin on the Mediterranean.
"The KRG gave us permission to start crude exports from the Taq Taq oilfield," Genel Energy President Mehmet Sepil said in an interview on Monday.
But Baghdad insists that it has the sole right to export.
"If the Kurdistan Regional Government insists on moving in the wrong direction, even by bartering crude without legal approval, this will worsen the situation and make it more difficult to reach an agreement," a senior Iraqi oil official said.
Oil is at the heart of a deepening rift between Baghdad and Kurdistan that threatens to undermine the country's uneasy federal union just a year after the last American troops left.
The KRG halted exports through the Baghdad-controlled Iraq-Turkey pipeline last month due to the renewed payment dispute.
And a KRG source said the crude trade through Turkey was likely to keep going.
"Crude is a new component in the KRG's ongoing barter deal with Turkey, and it's likely to continue because Baghdad is not paying as agreed, nor is it supplying the KRG with sufficient refined products," the KRG source said.
"So the trade is part of our 17 percent entitlement to refined products, and the contractors will be able to earn their share as well, according to their contracts."
An agreement with Baghdad entitles Kurdistan to 17 percent of oil products refined in Iraq, the KRG source said.
NO OIL EXPORT BREAKTHROUGH
Oil shipments from Kurdistan are unlikely to resume through the federal pipeline system, with Kurdish and Iraqi Arab officials increasingly at odds over oil policy and autonomy, officials and sources said.
Kurdish and Iraqi officials said negotiations to resolve the dispute are at a stalemate and are now overshadowed by growing turmoil between Shiite Prime Minister Nouri al-Maliki and Sunni Muslim rivals, who say he has marginalized their community.
Thousands of protesters have taken to the streets in Sunni Muslim strongholds since December, when demonstrations erupted after security forces arrested bodyguards of Sunni Finance Minister Rafaie al-Esawi.
"No date has been set for a meeting between Kurdish regional officials and Iraqi oil officials to discuss payments and export issues. I think the current political crisis is preventing a date being set for a meeting," another Iraqi oil official said.
The KRG began exporting its own very light oil, or condensate, independently to world markets in October by truck to a Turkish port, where it was sold via an intermediary.
A fresh cargo of condensate is also ready to sell through an imminent tender, a shipping source said.
Industry sources reckon around 15,000 barrels per day (bpd)of condensate from the Khor Mor gas field are reaching the Toros terminal in Turkey. Just added crude oil exports from Taq Taq, for now, are also small.
In exchange, Turkey is sending back refined products to the Kurdish region, which is short of fuel.
Over the past year and a half, Kurdistan has upset Baghdad by signing deals with oil majors such as Exxon Mobil and Chevron, providing lucrative production-sharing contracts and better operating conditions than in Iraq's south.
The KRG says its right to grant contracts to foreign oil firms is enshrined in the Iraqi constitution, drawn up following the 2003 invasion that ousted Sunni dictator Saddam Hussein.
But payments to foreign operators in Kurdistan are caught up in the long-running spat over land and petroleum rights.
Baghdad said last month it would not pay oil firms operating in Kurdistan because the region had failed to export the volume of crude it pledged under a deal struck in September.
That agreement stipulated that Kurdistan would pump crude through the Baghdad-controlled Iraq-Turkey pipeline in return for payment. An export target of 200,000 bpd was set for the last two months of 2012, and Kurdish authorities pledged to raise exports to 250,000 bpd in 2013.
But exports of Kurdish oil have been halted since around mid-December, after nearing the 200,000 target early in the month.
Baghdad transferred an initial sum of 650 billion Iraqi dinars ($560 million) to the KRG. But a second payment is still pending for the foreign companies in Kurdistan.
© 2016 Thomson/Reuters. All rights reserved.