Iraq Orders Firms With KRG Contracts to Stop Work

Iraq's oil ministry has ordered companies operating under contracts with the Kurdistan Regional Government (KRG) to terminate them within three months as Baghdad steps up efforts to bring the region's oil sector under its control.

The order — communicated in a letter seen by Energy Intelligence — follows a bombshell Feb. 15 ruling by Iraq's Supreme Court that rejected the KRG's right to manage the oil resources within the territory of the largely autonomous region.

The KRG has fiercely disputed the ruling, insisting that it is "unconstitutional." The KRG argues that its oil operations and its contracts are entirely legal under the oil and gas law it passed in 2007.

This latest step appears to mark an escalation in the quarrel, with the federal ministry in Baghdad now addressing companies directly.

The letter requires all lead contractors and their subcontractors to pledge not to work on contracts or projects in Iraqi Kurdistan that are at odds with the court's decision.

Those with existing contracts in the region must terminate them "within three months from the date of their notification." And if they fail to comply, "the companies involved will be blacklisted," it adds.

The letter was dated Jun. 12 and signed by the head of state-run Basrah Oil Co. (BOC) Hassan Muhammed. It was sent with an attached letter from the oil ministry's supreme advisory committee, dated Jun. 7, containing the same instructions.

Who Will Be Affected?

International oil companies operating in the Kurdistan region of northern Iraq include US major Chevron, Norway's DNO and London-listed Gulf Keystone. None of them could immediately be reached for comment on Monday.

Very few of the remaining companies that signed production sharing contracts with the KRG also have operations in the rest of Iraq. The notable exceptions are Russia's Rosneft and Gazprom Neft.

However, some oil-field service firms will also be in the oil ministry's line of fire, which could have further implications for upstream activity in Kurdistan. "It's a big problem for companies like Schlumberger," said a Kurdish industry source.

It's unclear how the dispute will play out, especially given the political paralysis in federal Iraq, where members of parliament are still unable to form a government eight months after elections were held.

In a separate ruling last month, the Supreme Court decided that the country's interim government does not have the authority to enact legislation or take significant decisions on the country's future.

However, there have been some signs that the long-running fight over the independence of the Kurdish oil sector could finally be coming to a head.

Deputy Prime Minister Ali Allawi, who is also Iraq's finance minister and a respected technocrat, said last week that Kurdish oil exports — which came in around 425,000 barrels per day in May — had become "illegal" since the February court ruling.

The government would have to withhold the KRG's share of the federal budget until the issue had been resolved, he told Iraq's state news agency, adding that Kurdish crude exports should be placed in the hands of Iraq's state oil marketer Somo.