Iraq says Russian oil deal with Kurdistan is illegal

Iraq says Russian oil deal with Kurdistan is illegal
By Vladimir Kozlov in Moscow October 20, 2017

Iraq insists that a $400mn deal with the government of Iraqi Kurdistan, announced by Russian state-run oil major Rosneft on October 18, is illegal, Vedomosti reported on October 20.

"Such agreements and contracts are illegal and are not binding for the Iraqi state," Iraqi oil minister Jabbar al-Luaibi was quoted as saying in the report, adding that the Iraqi government may question the deal in national or international courts "to protect national wealth".

The agreement is for the acquisition of an 80% share in the region's six oil deposits with an estimated reserves of 670mn barrels.

Only the federal Iraqi government can make agreements of that kind, the Iraqi oil ministry said in a statement, adding that "irresponsible statements" of officials or foreign companies about intentions to strike deals bypassing of the federal government is blatant violation of Iraq's sovereignty and international law.

Kurdistan has been partially occupied by the Iraqi army in the wake of an independence referendum in late September.

Because of the strained political situation in the region, Rosneft apparently acquired the deposits under better conditions that it would have been offered otherwise and intended to become an important player in Kurdistan in the longer term.

The Russian oil major has already been active in the region. In April, Rosneft received the first oil from Kurdistan to be refined in its facilities in Germany and India.

The deal on oil supplies was closed in mid-February, while oil traders indicated that the oil is required at the refineries in Europe and Asia.

In April, Bloomberg reported, citing unnamed sources, that Rosneft has committed to paying an advance of about $1bn for the supplies of the Kurdish region of Iraq.

Reportedly, $1bn would account for about a third of the prepayment deals that the Kurdish regional government negotiated with oil traders.

In August, Rosneft closed a deal on acquisition of refineries from Indian Essar Oil, which could be the main recipient of Kurdish oil. The company also owns 24% of MiRO and 25% of BayernOil refineries in Germany following the restructuring of a joint venture with British Petroleum.

In September, Rosneft said it will invest in the construction of a gas pipeline in Kurdistan to export natural gas to Turkey and on to Europe. The agreement is expected to be signed before the end of this year, and the pipeline is to be put in operation in 2019.