Iraq Ends Ban, Allows Kurds to Export Oil

By HASSAN HAFIDH and SPENCER SWARTZ

AMMAN — The Iraqi federal oil ministry said Sunday it will allow the autonomous Kurdish government in northern Iraq to start exporting crude oil in June to world markets after blocking such shipments for the past two years.

The Kurds and the central government, which grants all oil-export licenses, have been at odds since 2007 over Iraq’s draft hydrocarbons law and oil contracts that the Kurds signed with foreign companies.

Despite those issues being still unresolved, Baghdad — under increased financial strain because of weak oil prices and falling revenue — will allow the Kurds to begin exporting 60,000 barrels a day from June 1, oil ministry spokesman Assem Jihad said. "We are agreeing to the exports," he said. The Kurds said Friday they would start exports regardless of the ministry’s approval.

Mr. Jihad didn’t say why Baghdad had reversed itself, but it is likely that the central government’s need for more revenue played a part in its decision. The government has slashed its 2009 budget three times because of falling oil prices.

Baghdad’s acquiescence is also welcome news for the small foreign oil companies, including Norway’s DNO International ASA, that have plowed hundreds of millions of dollars into finding and producing oil in Kurdish Iraq but haven’t been able to export a single barrel.

It is unclear whether the start-up of Kurdish crude exports could help soften hard bargaining positions that Baghdad and Erbil, home to the Kurdish government, have adopted on the draft oil law and the Kurdish contracts. Iraqi Oil Minister Hussain al-Shahristani has said in recent days that Baghdad still won’t recognize the roughly 25 contracts the Kurdish government has signed with foreign oil companies. In those deals, the Kurds allow companies to book some level of crude reserves they discover as their assets, a concession Baghdad hates and thinks is against the national interest.

The Kurdish government on Sunday welcomed Baghdad’s decision.

Mr. Jihad said the oil ministry’s State Oil Marketing Organization will handle the sale and marketing of Kurdish exports, which will be shipped via a major pipeline that snakes to a big export terminal in Ceyhan, Turkey.

Write to Hassan Hafidh at hassan.hafidh@wsj.com and Spencer Swartz at spencer.swartz@dowjones.com