updated 12/28/2007 2:47:32 PM ET 2007-12-28T19:47:32

Iraq's oil ministry threatened to cut off crude exports to South Korea if it does not back out of an oil deal signed last month with the Kurdistan regional government.

Iraqi authorities have drafted numerous versions of legislation to regulate the country's oil industry and share the revenues among Shiite, Sunni and Kurdish communities. Those efforts have stalled in parliament, largely due to opposition from the Kurds who want a greater say in managing oil fields in their self-ruled area of the north.

A consortium led by the state-run Korea National Oil Corp. secured exploration rights in early November from the semiautonomous Kurdish regional government for an oil field in the northern province. The Korean consortium includes SK Energy, South Korea's biggest oil refiner, and GS Holdings Corp.

"The ministry has made it clear that no contracts should be signed until a new national oil law is passed," Assem Jiham, a ministry spokesman, said late Thursday. "There was a clear warning to these companies that they will be blacklisted and excluded from any future cooperation with the ministry."

He said there would be "no leniency" shown to any company that signs such contracts.

U.S., investments and violence
According to KNOC, through November South Korea had imported 42 million barrels of oil from Iraq, nearly triple all its imports from the country last year. Iraq is the sixth-largest provider of oil to the country.

The Kurds have signed more than a dozen contracts with foreign oil companies, insisting Iraq's constitution gives them that authority. But the Iraqi Oil Ministry insists the contracts are illegal and has threatened to blacklist foreign firms who sign them.

U.S. officials view the oil law as a catalyst for investment and a means of tamping down sectarian violence. Most of Iraq's oil reserves are in the Kurdish north and the largely Shiite south. The provinces where most Sunnis live have few proven reserves, leading to suspicions they will be left out of oil profits.

Jiham did not say if a deadline had been set for KNOC to annul its exploration contract with the Kurds, but said that no exceptions will be made to the ban on contracts.

Earlier this week, Park Hyung-il, head of crude oil trading for SK Energy, said in a statement that he had been informed "that there may be some difficulties to renew the pending contract on crude oil with Iraq. However, it is too early to confirm details at this point."

Oh Ji-won, a spokeswoman with South Korea's Ministry of Commerce, said that the government was working through "diplomatic channels" on the issue.

Iraq is now exporting 1.9 billion barrels of oil a day, compared to 1.5 million a day earlier this year, according to U.S. statistics.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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