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Tensions Rise As Iraq Prepares To Usurp Kurdish Oil Contracts

Tensions are rising between Baghdad and Kurdish officials in the semi autonomous Kurdistan Regional Government in Northern Iraq as Iraq’s Oil Ministry prepares to take control of the Kurdish oil sector, including contracts with foreign companies. 

On Saturday, the Iraqi Oil Ministry announced plans to create a new national oil corporation in the Kurdistan region of Iraq, Reuters reported, prompting Kurdish officials on Monday to call on Baghdad to refrain from any “unilateral decisions”, a KRG spokesman told S&P Global Commodity Insights in an exclusive interview. 

While Baghdad and Erbil, in the Kurdistan region, have been squabbling over Kurdistan’s oil sales for many years, the situation escalated significantly in February, when an Iraqi federal court declared Kurdistan’s oil and gas sector “unconstitutional” from a legal standpoint. 

According to Reuters, international oil firms operating in the Kurdistan region with contracts with the KRG have been asked to sign new contracts with Iraq’s state-owned oil company, SOMO. Failure to comply will result in legal action against companies. 

In late April, Exxon withdrew from the Kurdistan region of Iraq, quitting its last license in the Pirmam gas block after entering the region in 2011, sparking the ire of Baghdad when it signed a contract independently with the KRG. 

Chevron, Genel Energy and Gulf Keystone also have contracts in the Kurdistan region of Iraq. Last year, Chevron started production at its Sarta-2 well in the region, in partnership with Genel. 

Based on estimates by the Kurdistan Ministry of Natural Resources, the semi autonomous region has some 45 billion barrels of recoverable oil reserves and 25 trillion cubic feet of proven gas reserves.

While Iraq is now making good on its threat to challenge the legality of Kurdistan’s independent exports, officials in Erbil are being very public about the region’s potential to export natural gas to Europe in the wake of Russia’s invasion of Ukraine. 

By Charles Kennedy for Oilprice.com

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