By Ercan Ersoy & Chris V. Nicholson – Bloomberg – 19.4.2013 –  : Iraq’s Kurdistan region has signed a landmark agreement with Turkey to supply it directly with oil and gas, two people familiar with the matter said.

The accord was signed last month when Turkey’s Prime Minister Recep Tayyip Erdogan met Iraqi Kurdistan Prime Minister Nechirvan Barzani in Ankara, said the people, who asked not to be identified because the plans are private. Turkish Energy Minister Taner Yildiz, contacted via his press office, declined to comment, as did an Iraqi Kurdish official. The Oil Ministry in Baghdad didn’t immediately respond to a request for comment.

The Kurdish government will sell oil and gas directly to Turkey in a deal that so far has bypassed the Iraqi government in Baghdad, which has warned the Kurds not to sign separate energy accords. Turkey may also take the Kurdish government’s stake in concessions operated by Exxon Mobil Corp. on the enclave’s border with the rest of Iraq, one of the people said.

“Large-scale oil exports would change the economic position of Kurdistan,” said Robin Mills, head of consulting at Dubai-based Manaar Energy Consulting and Project Management. “If this deal goes through, it’s an aggressive move by Turkey that really means busting relations with Baghdad.” Iraq’s deputy prime minister, Hussain al-Shahristani, said yesterday his government has told Turkey that it doesn’t allow oil agreements without central government approval, and that Turkey must respect Iraqi sovereignty.

Genel Windfall

The accords also spell a windfall for oil and gas companies such as Genel Energy Plc (GENL), the largest producer in the Kurdish region. Genel Chief Executive Officer Tony Hayward said last week that he expected a new pipeline transporting oil from the Kurdish region to Turkey to be finished by midyear.

Patrick d’Ancona, a spokesman for Genel, declined to comment on the agreement.

The Kurdish regional government in northern Iraq signed a production-sharing agreement with Exxon Mobil in 2011. It covered six blocks, the region’s oil minister Ashti Hawrami said in November that year, including Qara Hansher in the disputed region where the Kurdish enclave borders the rest of Iraq.

The Kurdish area could export 250,000 barrels of oil a day this year and that may increase to 1 million barrels by 2015 and 2 million by 2019, Hawrami said this month. “We believe a decentralized oil policy and the sharing of power and wealth is essential to Iraq’s unity,” he said.

Oil Nationalism

A deal with Turkey would make the Kurds less dependent on the Iraqi budget. That’s long been a point of contention between Baghdad and Erbil, the northern capital and base for a semi- autonomous Kurdish administration since after the 1991 Gulf War.

“Oil is linked to nationalism,” said Aziz Sardar, a visiting lecturer in Middle Eastern studies at University College Cork in Ireland. “Barzani is using it to secure his position and mobilize people, who see it as a way to independence.” For Turkey, the accord offers access to cheaper energy that would reduce its import bill and current-account deficit, the $800 billion economy’s key weakness.The deficit ballooned to about 10 percent of economic output in 2011, exceeding $77 billion and ranking as the world’s second-biggest after the U.S. Last year Turkey imported $59 billion of energy, Deputy Prime Minister Ali Babacan said in January.