The oil minister for Iraq's Kurdish region has outlined bold plans to export oil and gas directly to Turkey, escalating tensions in a battle with Baghdad for control of the country's fuel exports.
Ashti Hawrami, Kurdish oil minister, told an industry conference on Sunday that a one million barrel per day pipeline from Kurdish fields to an oil facility just a few kilometres from the Turkish border was expected to be completed by the end of next year.
He said a second phase would extend that pipeline across the border to deliver crude oil to the Turkish port of Cihan.
Turkey is also currently extending pipelines from the Cihan port on the Mediterranean to the border with Iraq’s Kurdish region.
"We envisage the building of a new pipeline taking Kurdistan’s oil, particularly the heavier component part to Cihan," Hawrami said in his first public announcement of the planned project.
Hawrami made the comments while speaking at a conference with Taner Yildez, Turkish energy minister, on Turkish-Kurdish energy co-operation.
Kurdish officials had been reluctant to publicly talk about the proposed pipeline until Turkey gave a clear sign that it was committed to the project.
He said another pipeline being planned would carry natural gas to Cihan and then on to international markets.
Yildez reiterated to journalists that any investment in the Kurdish oil industry would benefit all of Iraq.
Iraq's internal affairs
Talk of the project threatens to worsen already strained relations between Ankara and Baghdad, which has accused Turkey of interfering in Iraq's internal affairs.
Baghdad's central government maintains that it has the sole right to negotiate contracts and export oil and gas.
Turkish oil officials say the Kurdish region's large and virtually untapped oil and gas reserves and Turkey's huge demand for fuel, make pipelines linking the two almost inevitable.
Iraq has now become Turkey's second biggest trading partner, the majority of the trade with the Kurdish region.
Those considerations are outweighing Turkey's traditional opposition to any measures that would give the semi-autonomous Kurdish region even more power than it already has.
"If you look at Turkey, which is the second-fastest growing country in the world, its gas needs which increase significantly every year and then the price of oil," Mehmet Sepil, chairman of Turkey’s Genel Energy, tells us.
"I think people realise that Turkey is looking to Iraq - particularly the Kurdish regional government - very carefully because of economics, not because of politics," Sepil said.
The Iraqi government considers illega contracts such as those signed by Genel, the first of what is now more than 40 oil companies operating in the Kurdish region.
It has moved to ban Exxon Mobile, the world's biggest oil company, from new contracts in Iraq's huge southern oil fields if it carries through with contracts negotiated with the Kurdish government.
While proven oil reserves in the south of Iraq are estimated at 143 billion barrels, the Kurdish regions reserves total 45 billion barrels, the Kurdish government says.
Those figures though are believed to include oil from the disputed Kirkuk oil fields.
Selling oil directly
Kurdish officials maintain that as long as revenue goes to the central bank and the Kurdish region receives its agreed share of revenue, it can sell the oil directly.
"When we say oil from Kurdistan, it’s Iraqi oil," Hawrami said.
"There is no difference between Iraqi oil or Basra oil from Kurdistan."
The Kurdish government in April, though, stopped exports of oil from its fields to an Iraqi government facility near Kirkuk after a payment agreement broke down. Instead oil companies are selling the reduced production to local markets to cover their costs.
Kurdish rhetoric has become increasingly hard-line recently as Prime Minister Nouri al-Maliki's coalition government remains embroiled in a crisis over charges that the prime minister has reneged on promises made to Kurds, Sunnis and even his own Shia allies.
"Political stalemate in Baghdad, sporadic but intense bouts of violence and sectarian conflict point to an identity crisis," gloated the Kurdish region's annual oil and gas report released on Sunday.
"The stagnating political dynamics between the Sunni and Shia leaderships in Baghdad are positioning the Kurdistan region as a model of political virtue and stability in Iraq."
In another message to Baghdad, Hawrami also told the energy conference that the Kurdish region was planning to "barter" crude oil it produced with other countries for refined fuel. The move would also contravene the principle that only the central government can export Iraqi oil.
To an audience that included the governor of bordering Nineveh province, embroiled in its own dispute with Baghdad,
Hawrami also reiterated the intent to work in oil fields in disputed areas claimed by both the Kurdish and central governments.
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