UPDATE 2-Iraq to punish Turkey, Kurds over 'smuggled' oil-minister

Fri Jan 17, 2014 9:28pm IST

* Iraqi oil export row with Turkey, Kurds escalates

* Baghdad threatens legal action, trade reprisals

* Kurds are trying to export oil independently (Adds quotes, background)

By Ahmed Rasheed

BAGHDAD, Jan 17 (Reuters) - Iraq will seek legal redress and take other measures to punish Turkey and Iraqi Kurdistan, as well as foreign companies, for any involvement in Kurdish exports of "smuggled" oil without Baghdad's consent, Iraq's oil minister said on Friday.

Abdul Kareem Luaibi told reporters the government was preparing legal action against Ankara and would blacklist any companies dealing with oil piped to Turkey from Iraq's autonomous northern region without permission from Baghdad.

The Kurdistan Regional Government (KRG) said last week that crude had begun to flow through the pipeline, and exports were on track to start at the end of January.

It invited bidders to register with the Kurdistan Oil Marketing Organisation.

The KRG's Ministry of Natural Resources and a spokesman for the KRG did not immediately respond to requests for comment.

Officials at Turkey's Foreign Ministry and Oil Ministry were not available for immediate comment.

Luaibi said it was not in Turkey's interest to jeopardise bilateral trade worth $12 billion a year, saying Baghdad would consider boycotting all Turkish companies and cancelling all contracts with Turkish firms if the oil exports went ahead.

"Turkey must consider its commercial ties and its interests in Iraq," he said. "Turkey should know this issue is dangerous. It touches the independence and unity of Iraq.

"If Turkey allows the export of oil from the region, it is meddling in the division of Iraq, and this is a red line."

Baghdad has already blacklisted some companies for signing contracts with the KRG and last year threatened to sue Anglo-Turkish energy company Genel, the first firm to export oil directly from Kurdistan. That threat has not yet materialised.

Luaibi said the Finance Ministry had been told to calculate how much should be deducted from Iraqi Kurdistan's 17 percent share of the federal budget if the region failed to meet a government-set target for authorised crude exports via Iraq's State Oil Marketing Organisation this year of 400,000 barrels per day.

'CLEAR VIOLATION'

This target is well beyond Kurdistan's current export capacity of around 255,000 bpd. Kurdish ministers walked out of a federal cabinet session on Wednesday in protest at the draft state 2014 budget, which contains the target.

Industry sources do not expect Kurdistan's oil exports to reach 400,000 bpd until the end of this year or early 2015.

Luaibi said preparations are under way to sue the Turkish government for allowing Kurdistan to pump oil through the export pipeline without the approval of Baghdad.

He called this "a clear violation of the agreement signed between the two countries ... governing the export of Iraqi oil through Turkey."

"All companies...were notified not to deal with the (Kurdish) region to buy any quantity of oil which is considered as smuggled," he said. Any firms which did so risked legal action and an Iraqi government boycott.

"The Ministry of Oil will never deal with them at all," he said.

Luaibi reiterated Baghdad's stance that it has sole rights to manage energy resources, saying this was vital to Iraq's stability and that any breach would have "dire ramifications".

Kurdish Prime Minister Nechirvan Barzani had been due to visit Baghdad for talks on the dispute, rooted in disagreement over how to exploit Iraq's vast oil resources and share the proceeds. It was not clear whether his visit would go ahead.

Kurdistan used to export crude to Turkey through a pipeline controlled by Baghdad, but stopped the flow a year ago after the central government withheld payments to oil companies operating in the northern enclave. Baghdad said it would not pay as the KRG had not met its previous export target of 250,000 bpd.

Since then, the Kurds have been trucking smaller quantities of crude to Turkey and collecting the revenues directly, while laying their own pipeline, which was completed late last year.

Iraqi Prime Minister Nuri al-Maliki said that Kurdistan's missed export targets had cost Iraq $9 billion in lost revenue in recent years. (Additional reporting by Isabel Coles in Arbil and Humeyra Pamuk in Ankara; writing by Alistair Lyon; editing by Jason Neely)

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