* New pipeline to near Turkish border almost ready
* Baghdad says Kurdistan exports illegal, could split Iraq
* Kurdistan appeals to US for approval
By Orhan Coskun and Humeyra Pamuk
ANKARA, April 17 Iraqi Kurdistan will be ready
to export its crude oil directly to world markets via Turkey
within months after a new pipeline is completed, a move likely
to deepen a row with Baghdad over the distribution of Iraq's
The Kurdistan Regional Government (KRG) is on track to
finish the pipeline in the third quarter, linking Genel Energy's
Taq Taq oilfield with an existing Iraq-Turkey crude
pipeline, four Turkey-based industry sources told Reuters.
Turkey has given the green light to the plan, under which
oil from Taq Taq will enter the Kirkuk-Ceyhan pipeline at
Fishkhabur pumping station near the Turkish border, from where
it will flow directly to Turkey's southern port of Ceyhan for
shipping to international markets, the sources said.
The move will help Kurdistan significantly increase its oil
exports but could upset the Iraqi central government, which sees
independent exports from the north as illegal and says growing
trade between the KRG and Turkey threatens to split Iraq.
Oil is at the heart of the fight between the Arab-led
central government in Baghdad and the ethnic Kurdish-run
northern enclave, which dispute control over oilfields,
territory and crude revenues shared between the two regions.
Washington, wary of the divisions between Baghdad and the
autonomous region, has urged passage of a long-delayed national
oil law to resolve the standoff, which has intensified since the
last U.S. troops left in December 2011.
"The new pipeline will be linked to the Kirkuk-Ceyhan line,
said one Ankara-based industry source familiar with the matter.
"Naturally, once they can export via a pipeline and no longer
have to truck their oil to the border, the volumes will rise."
The new pipeline was originally designed as a gas pipeline
but KRG Energy Minister Ashti Hawrami said it was to be
converted to carry oil, a move which had helped Genel Energy to
bring its plans of pipeline exports by 2014 forward, sources
said. Genel declined to comment on the issue.
Sources said the pipeline has been laid up to Dohuk and is
currently 80 percent complete. It will be able to carry up to
300,000 barrels per day (bpd) and is being built by a Turkish
Kurdistan crude used to be moved to world markets through a
Baghdad-controlled pipeline to Turkey, but exports via that
channel dried up last year as a result of a row over payments.
Crude pumped from the Taq Taq oilfield has instead been
trucked over Iraq's northern border with Turkey, bypassing
Iraq's federal pipeline system.
Baghdad has said it alone has the authority to control
exports and sign contracts, while the Kurds say their right to
do so is enshrined in Iraq's federal constitution.
But Iraqi Prime Minister Nuri al-Maliki softened his tone
earlier this month, saying Iraq welcomed any step towards
rapprochement with Turkey on the basis of shared interests,
mutual respect and good-neighbourliness.
PAYMENTS AN ISSUE
But the hopes of reconciliation could be tested again when
the new pipeline is online and the issue of how to distribute
revenues between the KRG and Baghdad becomes an even more
pressing issue, sources say.
"I think that would require an agreement with Turkey, the
KRG and Baghdad," an industry source said.
"Where will the money for the oil exports be paid and who
will sell the crude from Ceyhan -- all of these issues will have
to be finalised with a written agreement."
Turkey has said it could play an active role in settling the
payment problems between the KRG and the central government in
Turkish Energy Minister Taner Yildiz said earlier this month
Turkey stood ready to support an arrangement under which 83
percent of oil export revenue went to Baghdad and the remaining
17 percent to Kurdistan.
"Turkey will respect the sensitivities of both Baghdad and
Arbil and will make sure both sides receive their shares from
the oil revenues as stated in the Iraqi constitution," a Turkish
Another Turkish official said opening an escrow account in
Turkey into which Iraq's oil export revenues could be deposited
would be a huge step in making sure they are fairly distributed.
"Turkey could help Arbil and Baghdad to overcome this
problem," the official said.
SEEKING U.S. APPROVAL
For over a year, Kurdistan has upset Baghdad by signing
deals with oil majors such as Exxon Mobil and Chevron
, providing lucrative production-sharing contracts and
better operating conditions than in Iraq's south.
Earlier this week, Kurdistan called on Washington to accept
its negotiations with neighbouring Turkey as a way to get its
oil to market rather than seeing it as a threat to Iraq's unity.
"The KRG's relationship with America's NATO ally Turkey over
energy should not be a concern to our U.S. partners. Iraq's
unity and upholding the federal constitution are central to all
discussions with Turkey," KRG's Hawrami said in a statement.
He said Kurdistan would seek a dialogue with Baghdad to
resolve outstanding energy issues based on the federal
constitution. The KRG is entitled to make exports happen and
prefers to do so with Baghdad, he said.
"We need to get oil from the Kurdistan region, and more
widely from northern Iraq, to market. By 2019, over 3 million
barrels per day of oil could flow through Iraq's northern energy
corridor to Turkey and the international market," Hawrami said.
Iraq's central government says Kurdistan is expected to
provide 250,000 bpd towards Iraq's 2013 oil export target of 2.9
million bpd. In 2012, the KRG was to contribute 175,000 bpd to
the federal budget, but realised an average of only 61,000 bpd.