RWE gas deal with Kurdish government rejected by Baghdad

Iraq on Sunday slammed as "illegal" an agreement between its autonomous Kurdistan region and the German energy firm RWE that is expected to help supply the planned Nabucco gas pipeline to Europe.

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"All (sales) contracts and agreements signed outside the legal framework, in other words with SOMO, are illegal," Baghdad's oil ministry said in a statement. SOMO – the State Oil Marketing Organisation – deals with sales of Iraqi oil and gas products.

Talks on the allocation of Iraq's natural resources are deadlocked, and Baghdad refuses to recognise contracts that the Kurdish regional government, based in the northern city of Arbil, has signed with foreign oil companies.

"No one outside the ministry has the right to sign contracts for the exportation of oil and gas," the oil ministry added.

RWE announced on Friday it has signed a cooperation deal with the Kurds "to develop and design its domestic and export gas transportation infrastructure – creating a route to market for Kurdistan's major gas reserves."

"The cooperation also foresees the negotiation of gas supply agreements to enable gas from the region to be transported to Turkey and Europe via the Nabucco pipeline," the German company said.

RWE is a key shareholder in the Nabucco project, which aims to bring up to 31 billion cubic metres (1,100 billion cubic feet) of gas annually to Europe through Turkey.

The European Union regards the project as vital to its future energy security following a number of eastern European disputes, which have disrupted supplies of Russian gas.

Kurdistan has been touted as a potential major supplier, but experts warn that instability in Iraq could make it difficult for supplies from the region to reach Europe. The regional government halted oil exports in October last year due to a payment dispute with Baghdad.

The oil ministry on May 6 said it had reached a deal with Arbil whereby all revenues would be handed over to SOMO, with Baghdad responsible for paying the extraction expenses in Kurdistan. But the agreement has not been implemented.