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Exxon Mobil Corporation : Iraq Says Kurdish Oil Exports to Turkey Are Illegal

07/09/2012 | 02:21pm US/Eastern

--Iraqi government threatens to take "appropriate action" after KRG begins crude exports to Turkey

--Iraq, Kurdistan governments at loggerheads over number of issues, including who should control oil, gas in Kurdistan region

--Kurdistan government says it was forced into latest move because Iraqi government hasn't been sending enough oil products to meet region's needs

(Adds comments from a Kurdish person on quantities of exported oil in the third paragraph, other details in the eighth paragraph.)

By Hassan Hafidh

Iraq's government Monday said crude-oil exports from the semi-autonomous northern region of Kurdistan to neighboring Turkey are "illegal" and threatened to take "appropriate action," in a continuation of recent of tensions between the two.

The Kurdistan Regional Government, or KRG, has begun exporting an unspecified amount crude oil by truck to Turkey without the permission of the central government.

A Kurdish person familiar with Kurdistan's oil exports said currently only four trucks a day are carrying crude across the border to Turkey.

"This is an illegal and unconstitutional business that we will take the right decision against," Faisal Abdullah, spokesman for Iraq's Deputy Prime Minister for Energy Hussein al-Shahristani, told Dow Jones Newswires.

"The Oil Ministry [in Baghdad] solely reserves the right to export crude oil, gas or oil products to other countries," Mr. Abdullah said.

Baghdad and Erbil, the capital of Iraq's Kurdistan, are at loggerheads over a number of issues, including who should control oil and gas produced in the region. The central government argues that it should control all resources in the country, while the Kurds say that they are eligible to run their own resources in accordance with the country's new constitution.

The KRG said that its crude would be refined in Turkey and sent back for local consumption, and that it was forced into this move because the central government hasn't been sending enough oil products to meet their needs.

The exported crude is a quantity-for-quantity barter arrangement to supply Kurdistan with oil products, mostly diesel, to fuel power stations, the Kurdish person said. The transit will continue according to need until the KRG receives its full entitlement of products from Baghdad, he added.

The KRG in April suspended crude-oil exports of nearly 100,000 barrels a day through a Baghdad-controlled export pipeline, protesting that the central government was delaying payment of around $1.5 billion that the region needs to pay to contracting companies.

This came after Iraq's central government reached an agreement that the Kurdish authorities would resume oil exports starting in February after a suspension of more than a year. The central government also agreed to pay exploration costs and expenses to foreign firms operating in the KRG region.

Tensions between Baghdad and the Kurdish region have risen since October, when U.S. energy company Exxon Mobil Corp. (XOM) announced a deal with the KRG to explore for oil in Kurdistan. Baghdad warned the U.S. oil giant could risk its agreements with the central government.

Write to Hassan Hafidh at hassan.hafidh@dowjones.com

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