Iraq's oil minister calls for an end to Kurdish oil contracts

BAGHDAD -- The Iraqi oil minister announced Thursday that the government would enforce a court decision to cancel oil contracts signed by the semiautonomous northern Iraqi Kurdish regions with international companies.

Iraq's oil minister calls for an end to Kurdish oil contracts

BAGHDAD -- The Iraqi oil minister announced Thursday that the government would enforce a court decision to cancel oil contracts signed by the semiautonomous northern Iraqi Kurdish regions with international companies.

Ihsan AbdulJabbar Ismail, the minister, stated to The Associated Press that the deals, which bypass the government in Baghdad are illegal and amount oil smuggling.

Since February's landmark ruling by the Supreme Federal Court in Iraq against the independent oil sector of the northern region, his remarks were among the most powerful ever made by a senior government official. Ismail stated that 17 oil companies would be targeted because of their dealings with Iraqi Kurdish regions.

Ismail stated that international companies who have signed such deals would be issued a cautionary notice.

"We will send them a soft message. 'You are involved in the smuggling oil.' Ismail said that if they are a respectable company, they will listen to them in an exclusive interview with the AP.

Kurdish officials, including those from the Kurdistan Democratic Party (Irbil), dismissed the court's ruling as unconstitutional and claimed that the supreme court is in fact unconstitutional.

This ruling was made against the background of political turmoil in Baghdad. Iran-backed groups are pressing Kurdish parties for their support and the formation of a government. The decision came after Moqtada Al-Sadr (the winner of the parliamentary election last year) decided to resign from the political process due to insufficient legislators in the 329-seat house. Al-Sadr was also allied with the Kurdistan Democratic Party.

An increasing number of attacks on Iraqi Kurdish regions' energy infrastructure has resulted in an increase in the number of attacks. Last month, rocket and mortar fires repeatedly hit a gas field, while others struck a pumping station or refinery.

The Iraqi Kurdish authorities have been exploiting a constitutional loophole for years to be able to export crude oil and keep a certain amount of financial independence from Baghdad's federal government. They kept all details about their operations, including production rates, secret. The Iraq Oil Report, a publication of the oil industry, estimates that this is 440,000 barrels per hour.

Ismail stated that Baghdad officials now want to close the door.

The February court ruling effectively disregarded the Iraqi Kurdish Oil Law as a legal foundation that allowed the region to continue with its independent exports and contracts. Many were skeptical about the timing of this ruling considering that it was delayed for many years. The Kurdistan Democratic Party (KDP) and al-Sadr tried to form a government in the absence of Iran-backed parties at the time.

Ismail acknowledged that the decision was made at a sensitive political time, but denied that it was politicized. The Oil Ministry filed lawsuits against seven international businesses, including Canada's Western Zagros, Norway's DNO and the U.K.'s Gulf Keystone, following the ruling.

The oil minister stated that four of the seven contracts were invalidated by Baghdad's Commercial Court. The court will then decide on the remaining three at a July 17 session.

Ismail stated that the goal is to cancel 17 contracts. He said that some of the contracts were with companies in the United Arab Emirates while others were with Chinese companies and some are with Russian companies.

Mustafa al-Kadhimi, the interim Iraqi Prime Minister, has so far maintained his distance from recent developments and issued conciliatory statements about the fraught relations between Baghdad's Kurdish authorities.

Ismail stated that the ministry plans to act on the ruling by the commercial court and give foreign companies the opportunity to cancel their contracts or request that the Iraqi federal government grant them waivers. He also said that they would transfer the contracts from Kurdistan’s Ministry of Natural Resources to Baghdad's federal government's Oil Ministry.

He denied claims that it was technically impossible to transfer contracts between authorities, saying that it is a matter "just paperwork". The Kurdish region uses a production-sharing contract model that is not compatible with the preference of federal government for technical service contracts.

Ismail stated that if the companies don't comply, the government will resort to the law and banks to enforce the decisions.

He said, "We also have Oil Police, but haven't asked for them to use us."

Baker Hughes, Schlumberger, and Haliburton, all key oil service companies, have pledged to follow the ministry's blacklist policy. They also said that they would not seek tenders from the Iraqi Kurdish authorities. International companies have operated in the Kurdish area for years with assurances by Kurdish officials that there would be no legal risk.

Contract oil companies with the Kurdish regions operate in territory that is de facto not under the control of the federal government. It would be an unprecedented step up to send federal police to shut down operations in the Iraqi Kurdish area.

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