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The Iraqi government cut off oil exports to South Korean firm SK Energy Co. on Jan. 1, and will deny the company oil for all of 2008 unless it backs out of its deal with the Kurdistan Regional Government (KRG) by Jan. 31, Reuters reported Jan. 28, citing Iraqi Oil Ministry sources. The move represents an important development in the ongoing dispute between the KRG and the Shiite-dominated central government in Baghdad over control of Iraq’s oil resources.
The Oil Ministry, run by Hussein Shahristani — a Shi’i closely allied with Iran and a leading figure in Iraq’s largest and most influential Shiite political party — has threatened for months to blacklist any companies doing business with the KRG. Iraq’s Sunnis and Shia and its neighbors — most notably Turkey, Iran and Syria, all of which have sizable Kurdish populations — have no interest in seeing Iraqi Kurds inch closer and closer to de facto independence. This includes taking a dim view of increased KRG control over lucrative oil revenues from Iraq’s northern fields, which will lessen the Kurdish body’s dependence on Baghdad.
All too familiar with playing the role of the sacrificial lamb in Iraq, the Kurds know this is their time to be as aggressive as possible in signing energy contracts to tie the economic interests of foreign firms into the KRG struggle for greater autonomy. In short, these energy deals are an insurance policy for the Kurds.
While the Kurds have been signing energy deals left and right, Baghdad simultaneously has been exploring every avenue to keep Kurdish ambitions in check. Though the KRG can sign energy contracts with foreign firms to develop fields in the North, the central government can easily block the KRG from exporting crude through the 600-mile pipeline that links the giant Kirkuk oil field with the Turkish port of Ceyhan on the Mediterranean. While the Kurds can still make money off of supplying the domestic market, the big payoffs lie in the foreign market.
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