Iraq’s Kurds are boosting crude output threefold by the end of next year and plan soon to resume talks with the new central government, signaling that a battlefield partnership against insurgents is helping mend ties.

The Kurds will increase production to 1 MMbbl/d by the end of 2015 from a current level of 320,000, said Sherko Jawdat, head of the natural resources committee in the Kurdish region’s parliament. Output will rise to 500,000 barrels a day by year-end, he said in an interview in Erbil, the seat of the Kurdistan Regional Government. Exports are currently 200,000 bbl/d, Jawdat said, without providing a forecast.

Putting aside their differences, Kurdish forces have fought alongside the Iraqi army to repel the advance of Islamic State, the militant group that has seized swathes of OPEC’s second- biggest producer since June. The Kurds’ efforts to export their own crude has provoked legal action by the central government in Baghdad and fanned speculation that the semi-autonomous region will pursue greater independence.

“There will be negotiations soon to resolve financial, oil and economic issues,” Jawdat said. Iraq’s new national government formed last month has agreed to send the KRG about $2 billion as a goodwill gesture, he said. The money represents the Kurds’ share of the federal budget for the months of August and September. The talks, which will include discussions about the Kurds’ oil sales from February through July, will determine the role of the state marketing organization, known as SOMO, in Kurdish oil sales, he said.

Chevron, Total

“Let SOMO come and know all the details, but the decision on how to sell, produce, export and whom to export to is a matter for the Kurdistan Regional Government,” Jawdat said.

Iraq, excluding the Kurdish region, boosted oil exports to 2.54 MMbbl/d in September from 2.37 million the previous month, said Asim Jihad, an Oil Ministry spokesman. It generated $7 billion from September sales, he said. Almost all of the exports were from southern oil fields, which continue to produce without interruption amid the conflict with Islamic State in northern Iraq.

Total SA, DNO ASA and Genel Energy are among international companies caught in the dispute between the KRG and the central government over disputed land and oil revenue. Chevron Corp., Marathon Oil Corp. and Afren Plc evacuated staff and halted drilling after the start of the Islamic State insurgency. Gulf Keystone Petroleum Ltd. returned all key foreign staff to the Kurdish region and will increase output now that U.S.-led air strikes have eased the militant threat, it said in a statement.

Stranded Tankers

Turkey has been allowing the sale of Kurdish oil through its Mediterranean port of Ceyhan since May, despite legal action by Iraq’s federal government, which calls the trade illegal because the Oil Ministry in Baghdad hasn’t approved it. In retaliation for the Kurdish sales, the central government has cut payments to the KRG since February. The KRG had been funded largely by an allocated 17% share of the federal budget.

The KRG earned $1.3 billion from selling 14 MMbbl of oil from February through September, with the money deposited at Turkey’s Halkbank, Jawdat said. The regional authority spent $400 million of the oil money to pay civil servants and will send the remainder to the central government once the two sides reach an agreement, he said.

Oil Hub

At least 13 large shipments of Kurdish crude plus several smaller cargoes have loaded since May 24, according to tanker tracking data monitored by Bloomberg as of Sept. 29. The government of former Prime Minister Nouri al-Maliki initiated legal actions to block companies from buying Kurdish oil. Several shipments have been sold, though some tankers loaded with Kurdish oil remain stranded at sea.

The KRG expanded its control over Iraq’s energy resources in June, when their Peshmerga armed forces took control of the disputed oil hub of Kirkuk after the Islamic militants routed the Baghdad government’s army there. The KRG isn’t currently producing or exporting Kirkuk crude and is focused on boosting oil sales from its own provinces, Jawdat said. Kirkuk has almost 9 Bbbl in reserves. Iraq, excluding a Kurdish region enlarged by Kirkuk’s fields, would be left holding 141 Bbbl, still the world’s fifth-largest deposits.

Iraq’s minority Kurds, who historically have resisted control by Arab-dominated governments in Baghdad, are charting a course to independently develop oil reserves the KRG calculates at 45 Bbbl—equivalent to almost a third of Iraq’s total deposits, according to BP data. The Kurds also hold more than all remaining reserves in the U.S.
Kurdish President Massoud Barzani’s administration has promised referendums on the status of Kirkuk and the Kurdish region’s independence from the rest of Iraq.