Iraq-Kurd Clash Cuts Oil Output at Disputed Kirkuk Fields

(Bloomberg) -- Crude output in Iraq’s oil-rich Kirkuk province tumbled when two fields halted production as government troops pushed back Kurdish forces in an Iraqi offensive to regain control in the disputed area.

The Kurdish KAR Group stopped pumping crude at the Avana and Bai Hassan deposits after technicians failed to report for work and security guards left amid the fighting, an official at the central government-run North Oil Co. said Monday, without specifying how much oil the fields were producing before the halt. While the KAR Group operates the fields, NOC staff work with the Kurds at both sites, the official , asking not to be identified as they’re not authorized to speak to the media. Phone calls to the KAR Group on Tuesday went unanswered.

The halt could affect 275,000 barrels a day in output, according to estimates compiled by Bloomberg. Kirkuk’s oil fields export through a Kurdish-controlled pipeline to Turkey. The Turkish port of Ceyhan received crude from northern Iraq and the semi-autonomous Kurdish region at a pumping rate of 510,000 barrels a day on Tuesday, down from 600,000 on Monday, according to a port agent who asked not to be identified because the information isn’t public.

“There’s still a remaining threat of some sort of interruption,” said Edward Bell, a commodities analyst at Dubai-based bank Emirates NBD PJSC. “Given the political issues facing the Kurds, there’s always a lingering question mark over their level of exports.”

Kirkuk, home to Iraq’s oldest-producing oil fields, is a tinderbox in the power struggle between the central government in Baghdad and the Kurdistan Regional Government. Tensions in the northern province erupted into outright hostilities between the central government and the KRG on Monday following a Kurdish referendum on independence from Iraq. The KRG included Kirkuk in the Sept. 25 referendum despite competing claims to the ethnically mixed area, which lies outside the boundaries of the KRG-ruled Kurdish region.

Iraqi forces on Monday seized the headquarters of Kirkuk’s provincial administration, as the government in Baghdad escalated its efforts to block the creation of a Kurdish state in the country’s north. On their way toward Kirkuk, Iraq’s army and allied militias took oil fields, a refinery and a military base from Kurdish control, according to state-run Iraqiya television. Brent crude was 25 cents higher at $58.07 a barrel on Tuesday at 3:28 p.m. in Dubai. The global benchmark rose 1.1 percent Monday to close at the highest since Sept. 27.

Iraq, the second-largest producer in OPEC, pumps most of its 4.47 million barrels a day from fields in the south and ships it from the Persian Gulf port of Basra. But with Iraq supplying about 14 percent of total production from the Organization of Petroleum Exporting Countries, a deepening conflict in the north could roil crude markets. 

Giant Field

Of the 275,000 barrels a day in production at disputed Kurdish-run fields in Kirkuk, the Bai Hassan field has been pumping 195,000 barrels a day while the Avana Dome -- the central part of the giant Kirkuk field -- has been producing 80,000. Iraqi federal police have taken control of Bai Hassan, Kirkuk provincial police spokesman Colonel Afrasiau Kamal said by phone on Tuesday, without elaborating on any plans to resume production at the field.

The Baghdad-controlled North Oil Co. operates the Baba Dome -- the southern part of the Kirkuk field -- along with the nearby Jambur and Khabbaz fields, for a combined output of around 90,000 barrels a day, according to a map published in February by Western Zagros, a company operating in Iraq’s Kurdish region. 

Baghdad piggybacks its exports from Kirkuk with Kurdish shipments through the KRG-run pipeline to Turkey, which runs to the Mediterranean port of Ceyhan. Kirkuk’s fields and deposits in the Kurdish region were exporting about 600,000 barrels a day through the pipeline, a person familiar with the matter said on Monday. Oil was still flowing through the export link, the KRG’s Ministry of Natural Resources said later in the day on Twitter.

The latest hostilities flared after the central government and the KRG combined forces to expel Islamic State militants from most of northern Iraq earlier this year. Kurdish fighters occupied much of Kirkuk province in June 2014, after Iraqi troops fled ahead of militants advancing at the time into the area. Baghdad refuses to recognize Kurdish control of Kirkuk.

--With assistance from Julian Lee and Elaine He

To contact the reporters on this story: Khalid Al-Ansary in Erbil at kalansary@bloomberg.net, Kadhim Ajrash in Baghdad at kajrash@bloomberg.net, Anthony DiPaola in Dubai at adipaola@bloomberg.net.

To contact the editors responsible for this story: Bruce Stanley at bstanley5@bloomberg.net, Claudia Carpenter