The Kirkuk oil field in northern Iraq could be producing 70,000 barrels more per day, but a dispute between Iraq's central and Kurdish regional governments has kept the needed equipment gathering dust.

Two weeks ago the security forces of the two governments, which don't always work in league, had a 24-hour standoff over the northernmost section of the oil field, called Khurmala Dome.

"Some people came and stopped our production," said Iraqi Oil Minister Hussain al-Shahristani.

According to various media outlets and sources who spoke to United Press International on condition of anonymity, the Peshmerga Kurdish military force forced an Iraq Drilling Co. team off the site, claiming Kurdistan Regional Government sovereignty over it.

"The federal government gave an ultimatum: Within 24 hours if that obstacle is not removed, we'll take drastic action, and within 24 hours it was removed and production was resumed," Shahristani said. "That is one of the three domes of the Kirkuk field, which is a producing field, and nobody has the right to stop the Ministry of Oil from producing." He vowed to use security forces if it happens again.

"We are now producing about 30,000 barrels per day from the Khurmala Dome, and we are drilling there, there's a couple of rigs there," he said. "And we'll be developing that field."

It's not clear, however, how the field will be developed.

The State Company for Oil Projects, part of the Oil Ministry, awarded a $136 million contract in December 2004 to Iraq-based KAR Group to provide engineering and equipment for developing Khurmala Dome to a 100,000-bpd producer.

All the work under that contract is completed, but SCOP has not started using the equipment.

Meanwhile, the Oil Ministry is in the final stages of negotiations with Shell, reportedly to pay $500 million for the oil giant to provide technology, equipment and training to boost oil production from the entire Kirkuk field by 100,000 bpd within two years.

Similar deals with five other fields are being negotiated with other global oil companies, but details are not being released by the Oil Ministry.

The development at Khurmala Dome may be stalled by Baghdad as talks evolve over the Shell deal -- which raises questions of redundancy in work, performance and payment.

But ongoing disputes over the direction Iraq's oil sector should take are likely a large factor.

Negotiations between the Kurdistan Regional Government and the central government are to start again this week over a series of items including a draft federal oil law and related oil revenue and administrative legislation; the dozens of deals the KRG has signed to explore for and produce oil in their territory; and disputed territories just outside the official KRG boundaries, which include most of the Kirkuk field.

Khurmala Dome, however, is officially in Erbil province, part of the KRG. But drafts of the oil law puts discovered and producing fields under the control of the central government, sparking a dispute over what role the federal government plays within the semi-autonomous Kurdish region.

"Khurmala Dome is not in a disputed area. It's in Kurdistan, period," KRG Minister of Natural Resources Ashti Hawrami said, adding he considered it a non-producing field. "People say KRG are not allowing them to work in Khurmala. What that really says is it's under KRG control and we'd like to go get it back from them."

Baghdad also accuses the KRG of signing oil deals for exploration blocks that fall outside the official KRG territory. Hawrami says the KRG is the administrator of the territory and thus is allowed to sign deals.

"You show me the green line in the constitution," he said. "You show me a green line that officially anybody signed on it. There are many green lines. But what counts really is what is currently under the KRG authority."

Last November the KRG awarded a service contract to develop Khurmala to the new Kurdistan National Oil Co., a KRG-owned company that is still being organized.

The field will be developed to 250,000 bpd, according to a KRG statement announcing the contract, as well as a 50,000-bpd refinery. Associated natural gas from the field development and fuel oil from the refinery will be supplied to the KRG Electricity Ministry.

Some time in the second half of 2007 KRG security forces were accused of preventing the central government from doing work at Khurmala Dome.

SCOP Director General Falah al-Khawaja told UPI last November, "They prevented us from continuing our work, which is actually against the law," though he refused to say who "they" were.

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