Kurds Reach New Oil Deals, Straining Ties With Baghdad

The NY Times:

The Kurdish regional government has reached four new oil-exploration deals, further straining relations with many Iraqi leaders in Baghdad, who want to maintain a more centralized control over the country’s enormous oil reserves.

The new deals are the latest in an effort by the Kurds to build their own oil industry while national oil legislation languishes in Parliament. A similar agreement reached last month with the Hunt Oil Company of Dallas was criticized as illegal by the Iraqi oil minister, Hussain al-Shahristani.

Kurdish officials, who have said they want to bring about a major increase in oil production, say the deals are consistent with the Iraqi Constitution.

But many in Parliament object to the Kurdish interpretation, and it is unclear how the Kurds’ own regional oil law, passed in August, will conform with whatever might ultimately be approved by the central government.

Many Sunni Arab leaders object to the production-sharing agreements being negotiated by the Kurds, which call for companies to invest large sums for finding and producing oil and to be awarded a portion of the profits generated by the new fields.

Any federal oil law would have to take account of Kurdish and Shiite concerns that provincial governments be given substantial autonomy to carry out their own development plans and of the desire of Sunni Arabs for strong central control to assure that they receive a fair share of the revenues, even though there is little oil in their provinces.

So far, these problems have proved insurmountable, and the oil law, one of President Bush’s benchmarks of progress in Iraq, has stalled.

The Kurds’ new contracts were signed with Heritage Oil Corp., a publicly traded Canadian concern, and Perenco S.A., a privately held French company. Two other deals with “experienced international companies” are to be announced soon. The total initial amount invested is expected to be $500 million, the regional government said.

If the exploration leads to oil production, Kurdish officials said that in rough terms the deals call for the companies to recover their costs and split profits, with 15 percent going to the companies and 85 percent to the government. A Kurdish official said it would take three to five years before any production could start.

In Baghdad, a spokesman for the Iraqi Oil Ministry denounced the new oil-exploration contracts and warned companies not to sign deals without the blessing of the national government.

“Any contracts signed before the approval of the oil law will be ignored or considered illegal,” said the spokesman, Assim Jihad.

A senior State Department official in Baghdad has also criticized the oil contracts as having “needlessly elevated tensions” between the Kurds and Baghdad.

A Kurdish official defended the deals, saying that the revenue would be shared with all Iraqi regions and that delays in signing exploration pacts only postponed the delivery of much needed cash to the treasury. “We can start now to look for exploration, and by the time we need the money the cash flow will be coming into the country,” the official said.

A Western executive involved in negotiations with the Kurds said the regional government seemed to be trying to “create a fait accompli” by signing so many deals with foreign companies that the central government eventually had to accept the provisions sought by the Kurds in any final version of the oil law.

An official at another oil company said the burst of deals reflected the Kurds’ concerns that their oil development was delayed during the time of Saddam Hussein and that they lagged in production compared with Shiite-dominated southern Iraq.

“I just think they know instinctively that they are behind the curve, and they have to move or they will never get their resources out of the ground,” said this official, who was not authorized to speak publicly. “The Kurds might be playing catch-up in the petroleum business, but they are doing a good job.”