COLUMN-The outsized impact of the Kurdish oil dispute: Campbell

(Robert Campbell is a Reuters market analyst. The views 
expressed are his own) 
    By Robert Campbell 
    NEW YORK, Aug 3 (Reuters) - This week's thaw in the dispute 
between the Iraqi federal government and the Kurdistan region 
over oil export revenues will offer hard-pressed Mediterranean 
refiners less help than expected and underscores the wider 
impact of this issue. 
    The semi-autonomous Kurdistan Regional Government (KRG) 
offered this week to partially resume exports of oil from the 
region for a month.    
    Although the dispute has directly affected some 175,000 
barrels per day of Iraq's Kirkuk blend exports, the shutdown has 
exacerbated the tight spot supply situation in the Mediterranean 
for sour crude oil, driving up the price of Russian crude 
throughout Europe. 
    Baghdad and the KRG have been at loggerheads over the 
sharing of oil export revenues and regional control over the oil 
industry for some time. 
    The KRG unilaterally halted oil exports in April to pressure 
the central government to turn over revenues it says is owed for 
the oil. 
    Steps by the KRG to expand its oil exploration efforts with 
the help of international oil firms, and in defiance of Baghdad, 
have only further inflamed the issue.  
    Led by ExxonMobil   , international oil majors have 
risked Baghdad's wrath to sign exploration deals with the KRG 
this year even though Iraqi federal oil legislation remains 
unfinished. 
     With Europe's ban on imports of Iranian crude oil coming 
into effect on July 1, the loss of some Kirkuk supplies has come 
at a particularly difficult time. 
    Kirkuk is seen as a good substitute for Iranian crude, but 
the export disruption has made it difficult for Mediterranean 
refiners to substitute the Iraqi grade for Iranian oil. 
    Crude oil traders say the dispute has contributed to lengthy 
delays in loading Kirkuk shipments for export as the loss of 
supplies from Kurdistan has exacerbated delays in fulfilling 
Kirkuk export programs.  
    Tankers are forced to wait at least three weeks to load oil 
at Ceyhan, imposing significant costs on customers, traders say. 
    There are few things oil refiners hate more than uncertainty 
over the delivered cost of crude oil, other than, perhaps, the 
risk that a cargo may not arrive in time to ensure continuous 
operations. 
     
    OUTSIZED STRENGTH 
    The uncertainty over shipping costs and the time it may take 
to receive oil has driven Mediterranean refiners to search for 
more reliable supplies. 
    The result has been steady buying of Russian Urals crude 
oil, adding further upward pressure on the relative price of the 
main Russian export blend grade, which was already boosted by 
the ban on imports of Iranian oil. 
    Strong prices for Urals in the Mediterranean have also 
supported the value of the grade in Northern Europe due to the 
active arbitrage trade between the Baltic and the Mediterranean. 
    (See graphic: ) 
    That in turn has lent some additional support for the prices 
of other short-haul Northern European crudes, including the four 
North Sea grades --Brent, Forties, Oseberg and Ekofisk-- that 
set the price of Brent. 
    A key question for European oil traders is how long this 
dispute may go on.  
    The KRG offered this week to partially resume shipments to 
the export terminal at the Turkish port of Ceyhan, but only 
until Aug 31, a move that will only somewhat alleviate the 
situation.  
    Should the resumption of exports prove only temporary it 
will offer only a limited reprieve to Mediterranean crude buyers 
and will do little to alleviate concerns over the reliability of 
Kirkuk exports. 
    A great deal of money may have to change hands just to 
ensure flows start to get steady. The KRG says it is owed 
hundreds of millions of dollars by Baghdad for oil exports. 
    Foreign companies operating in the Kurdish region say they 
have not been paid for the majority of the oil they have 
exported since 2009. 
    Yet up front cash is far from the only problem.  
    The heart of the dispute is the Kurds' desire for greater 
autonomy from Baghdad and control over its own oil industry. 
    The furious reaction of Iraqi federal officials to the 
exploration deals signed between the KRG and international oil 
majors suggests that an agreement over this issue remains 
distant. 
    Iraqi politicians have been struggling since 2007 to pass 
federal oil legislation to replace the Saddam Hussein-era laws 
that still govern Iraq's oil sector. 
    In the absence of progress on this crucial legislation 
further disputes between Baghdad and the KRG that affect oil 
exports remain likely. 
 
 (Editing by Sofina Mirza-Reid) 
 ((Robert.Campbell@thomsonreuters.com)(+1 646 223 4950)) 
 
Keywords: COLUMN CAMPBELL/KURDS