Iraq's Kirkuk Province Spurns Plan to Ship Its Oil to Iran

(Bloomberg) -- Iraq's northern province of Kirkuk refuses to cooperate with any plans to ship its oil to neighboring Iran because the central government didn't consult with it on the matter, Kirkuk provincial officials said.

The central government in Baghdad and the semi-autonomous Kurdistan Regional Government both pump crude from different wells at Kirkuk's oil fields, which straddle their respective areas of control. Kurdish forces took control of some fields in Kirkuk in June 2014 after the Iraqi army fled from Islamic State militants, but the government in Baghdad doesn't recognize Kurdish control of the area.

Kirkuk won't cooperate with the central government to ship its oil to refineries in neighboring Iran as the federal authorities didn't seek its input, Ahmed Al-Askari, head of the energy committee at the Kirkuk provincial council, said by phone from London.

“Any oil deal, or discussions about the province's output, without involving the Kirkuk governorate and its provincial council will not be successful,” the Kirkuk governor's office said in an emailed statement.

Iraqi Oil Minister Jabbar Al-Luaibi agreed a few days ago with his Iranian counterpart to study plans to build a pipeline to ship Kirkuk oil to a refinery in Iran. Their decision followed an announcement by the KRG that it will hold a referendum on independence from Iraq on Sept. 25, including in Kirkuk. The planned referendum has angered authorities in Iran and Turkey -- both with sizable Kurdish minorities -- as well as in Iraq. It also drew criticism from the U.S. because the step would be destabilizing at a time when the fight against Islamic State has yet to be won.

‘Political Ploy'

The Iraqi government's proposal to send oil from Kirkuk to Iran is meant to “hinder the Kurdistan referendum, which will eventually include Kirkuk,” Dilshad Shaaban, a lawmaker from KRG parliament, said in emailed answers to questions from Bloomberg.

The pipeline proposal is a “political ploy” to increase the central government's leverage over the KRG prior to the possible independence referendum, BMI Research said in an emailed note on Aug. 1. The pipeline would divert oil to Iran and away from the export route to the Mediterranean via the Kurdish region and Turkey, it said. The project would also deny a “large amount” of oil revenue to the KRG and could move Iraq's Kurdish region toward a “financial breaking point,” according to the note.

Iran's official Islamic Republic News Agency reported on July 29 that Iraq would transfer oil to Kermanshah and Tabriz refineries, citing a preliminary agreement between the two nations.

READ: How a Squabble at Iraq's Oldest Oil Field Can Roil World Supply

Kirkuk, where Iraq first discovered oil in 1927, can produce more than 1 million barrels a day but is pumping at less than half its capacity as competing ethnic and political groups scramble to control its 9 billion barrels of reserves. Iraq exported 98.178 million barrels of crude, including 677,000 barrels from Kirkuk, in June, Oil Ministry spokesman Asim Jihad said in an emailed statement on July 1.

To contact the reporter on this story: Khalid Al-Ansary in Erbil at kalansary@bloomberg.net.

To contact the editors responsible for this story: Nayla Razzouk at nrazzouk2@bloomberg.net, Bruce Stanley