The Iraqi federal oil ministry said Sunday it will allow the autonomous Kurdish government in northern Iraq to start exporting crude oil in June to world markets in a move that will boost badly needed oil export revenues for Baghdad.
The Kurds and the central government, which grants all oil-export licenses, have been at odds since 2007 over Iraq's draft hydrocarbons law and oil contracts the Kurds signed with foreign companies. Baghdad has blocked Kurdish oil exports for two years over the contract issue.
Despite those issues still being unresolved, Baghdad --under increased financial strain because of weak oil prices and falling revenues -- will allow the Kurds to begin exporting 60,000 barrels a day from June 1, ministry spokesman Assem Jihad told Dow Jones Newswires.
"We are agreeing to the exports," he said. The Kurds said Friday they would start exports regardless of the ministry's approval or not.
Jihad didn't say why Baghdad had reversed itself, but it's likely that the central government's need for more revenue played a part in its decision. The government has slashed its 2009 budget three times because of falling oil prices.
Baghdad's acquiescence is also welcome news for the small foreign oil companies, including Norway's DNO International ASA, that have plowed hundreds of millions of dollars into finding and producing oil in Kurdish Iraq but haven't been able to export a single barrel.
It's unclear whether the startup of Kurdish crude exports could help soften hard bargaining positions Baghdad and Erbil, home to the Kurdish government, have taken up on the draft oil law and the Kurdish contracts.
Iraqi Oil Minister Hussain al-Shahristani has said in recent days that Baghdad still won't recognize the roughly 25 contracts the Kurdish government has signed with foreign oil companies. In those deals, the Kurds allow firms to book some level of crude reserves they discover as their assets, something Baghdad dislikes and considers against the national interest.