Iraq has issued a warning that it may cut off oil exports to South Korea unless the Asian country's energy companies halt oil exploration in the Kurdish region, the Korea National Oil Corp. (KNOC) said Monday. The state-run company said the Iraqi government has given SK Energy Co., a leading South Korean refiner, the warning by phone, demanding that SK Energy halt the exploration since it did not get permission from Baghdad.
SK Energy is a leading participant in a South Korean consortium led by the KNOC that signed a output-sharing deal with the Kurdistan autonomous government in November. The South Korean consortium signed the agreement to take over a 38% stake in the Bazian oil field in the Zagros Basin in northern Iraq that is estimated to hold 500 million barrels of crude oil.
The consortium plans to set up a local representative office in January with detailed exploration and drilling planned for 2010. Government officials convened a meeting of oil exploration companies to review the request and how to respond in the most effective manner to the unexpected development.
As of October, South Korea had imported 37.12 million barrels of crude oil from the Middle Eastern country, accounting for 5.2% of the total in the first 10 months of the year. Iraq was South Korea's sixth-largest supplier of oil during the period, after Saudi Arabia, the United Arab Emirates, Kuwait, Iran and Qatar.
"If Iraq cuts off oil shipments, it could cause prices to rise since South Korea will have to seek imports from elsewhere on short notice," said a ministry insider. However, he said there is a need to take a wait-and-see approach since U.S., British and Indian companies signed similar deals with Kurdish authorities at around the same time.
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