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Iraq's new oil deals seen weakening Kurds' hand
* Deals may give Iraq enough revenue to block Kurd exports
* Row over Kurdish oil contracts part of wider dispute
By Ayla Jean Yackley
BAGHDAD, Dec 17 (Reuters) - Oil firms are betting that an eventual agreement between Kurds and Arabs will allow exports from northern Iraq, but the wager became more risky last week after Baghdad secured a host of major deals of its own.
The Iraqi Oil Ministry awarded leading global energy firms contracts to operate seven fields in the Dec. 11-12 auction, its second tender since the 2003 U.S. invasion.
The two bid rounds have yielded deals that may quadruple Iraq's output, putting Iraq close to world oil leader Saudi Arabia and possibly giving the Arab-led government in Baghdad enough revenue to ignore exports from Kurdistan, held up by a row over who should pay the foreign oil companies working there.
Small firms including DNO (DNO.OL), Genel Enerji and London-based Heritage (HOIL.L) have struck production-sharing agreements in the largely autonomous northern Kurdish region.
While the Iraqi government brands deals signed unilaterally by Kurdistan illegal, it had earlier this year permitted Kurdish exports via its national pipeline in what was hailed as a step forward in Kurd-Arab relations and a sign of Iraq's desperation to plug gaping budget holes on a steep decline in oil prices.
The agreement fell apart, though, when Baghdad refused to pay the foreign firms for their work, insisting instead that all oil revenues enter national coffers, from where Kurds could pay them from their regular 17 percent cut of the national budget.
Now Baghdad, flush with confidence after the auctions, will be even less inclined to make concessions, analysts said.
"The Kurdish position is looking weaker now, given the sheer magnitude of the production boost in the south that is underway," said Reidar Visser, editor of www.historiae.org.
Oil Minister Hussain al-Shahristani, a critic of the Kurdish deals, said on Saturday contracts from the two auctions will earn Iraq an extra $200 billion annually in six years.
Oil now accounts for over 90 percent of government revenue, and more than two-thirds of Iraqi production is concentrated in the country's south near the oil hub of Basra.
"Kurds have the ability to export 250,000 barrels per day. That is money for the federal government to count on, so there is no reason why export payments should be declined," Ashti Hawrami, Kurdistan's natural-resources minister, said recently.
But Shahristani doesn't seem inclined toward flexibility. He has banned oil companies that do business in Kurdistan from participating in the government's tenders.
The row over oil contracts is part of a larger conflict between Arabs and Kurds about land and oil rights, including control over the oil-rich area of Kirkuk, which poses a major threat to Iraq's stability as U.S. troops prepare to withdraw by the end of 2011.
The odds of rapprochement are likely to be even lower until after Iraq's March 7 general election.
"I think a new political climate will develop after the election, and I am hopeful that these matters will be dealt with soon after the election," Hawrami said in an interview.
Norway's DNO, a trailblazer in Kurdistan, said last week it was no longer drilling there after exports were halted.
Last month, Heritage, which made large finds in the north earlier this year, scrapped a planned merger with Turkey's Genel Enerji.
Still, Kurdistan remains attractive to small companies unable to compete with oil majors for large reservoirs in the rest of Iraq, an official at a company that has signed an exploration deal in the north said on condition of anonymity.
"We don't see this as a long-term problem, because in the end, if Iraq seeks revenue to improve the country's welfare, it will sell its oil," he said. "Until now there hasn't been a country that says, 'I have enough oil, I won't produce more.'"
(Editing by Keiron Henderson)
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