Iraq's cabinet approved a deal that would allow oil exports to resume from the country's semi-autonomous Kurdish region, taking the two sides closer to resolving bitter disputes over oil, land and power.
The deal between the central government and the Kurdish Regional Government (KRG) involves the Ministry of Finance in Baghdad paying foreign oil firms operating in Iraqi Kurdistan their expenses, government spokesman Ali al-Dabbagh said.
It does not cover the companies' profits, and did not mean Oil Minister Hussain al-Shahristani accepted the contracts, which are production-sharing deals, signed by the Kurds with the companies, a spokesman of Iraqi Oil Ministry said.
The approval of the deal by the Iraqi cabinet could signal that Iraq's incumbent Shi'ite-led government is creeping closer to sealing a tie-up with minority Kurds to forge a coalition government following an inconclusive election in March.
It was unclear, though, if the offer to pay exploration and extraction costs would be accepted by the KRG and lead to a speedy resumption of exports.
"We hope that the guarantees offered by the Finance Ministry would be enough to convince the Kurdish Regional Government to start delivering the crude to Iraq to be exported through the State Oil Marketing Organisation (SOMO)," Oil Ministry spokesman Asim Jihad said.
The news was welcomed by Kurdish Natural Resources Minister Ashti Hawrami, but he could not confirm any details about the deal.
"We are very comfortable with this decision but we don't have details about it so we can't comment," he told Reuters in the northern city of Arbil. "We have been waiting for this step for a while."
Iraqi Kurdistan and Baghdad have been at loggerheads over many thorny issues that U.S. military officials fear could be the spark of Iraq's next major conflict just as the sectarian bloodshed unleashed after the 2003 U.S.-led invasion fades.
At the heart of the dispute lies the city of Kirkuk, which Kurds want to have wrapped into their northern region, and other disputed territories.
Baghdad has also opposed oil deals the Kurds signed independently with foreign firms, considering them illegal.
A detente last year led to a brief period of oil exports from two Kurdish oilfields -- Taq Taq and Tawke, operated by Norway's DNO, Turkey's Genel Enerji and Addax Petroleum Corp, now bought by China's Sinopec.
But the pumps shut down quickly when Baghdad refused to pay the companies operating them.
If oil exports resume from the Kurdish region it is expected to be at a rate of 100,000 bpd, possibly reaching 250,000 bpd by the end of the year. Iraq exports the majority of its oil from its southern fields around the city of Basra at an average of 1.5 million bpd.
Baghdad's hand has been strengthened by a series of deals for oilfields outside the Kurdish region that could turn it into one of the world's top three crude producers.
The deals could boost Iraq's production capacity to 12 million barrels per day in seven years from 2.5 million bpd now.
"The cabinet approved... the request of the Oil Ministry to execute the agreement between the ministry and the Kurdish region to export crude from the region through the (State) Oil Marketing Organisation," Dabbagh said in the statement after the cabinet's weekly meeting and allowing the Finance Ministry to send a letter to the regional government guaranteeing paying the expenses of the firms after auditing them according to the agreement."
Shahristani had said earlier this year that the government could end up paying exploration and extraction costs of oil firms working in Iraqi Kurdistan but not their profits.
On Monday, Hawrami told Reuters that Kurdish oil exports will start only after the formation of a new Iraqi government following the March election. That could still take months.