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Iraq-Kurd oil talks break ice, long-term fix unlikely

By Ahmed Rasheed and Isabel Coles

BAGHDAD/ARBIL, Iraq (Reuters) - A lasting solution to Iraq's dispute with its Kurdish north is unlikely even if recent talks between the two sides lead to a resumption of oil exports from the autonomous region.

Kurdish crude used to be shipped to world markets through a Baghdad-controlled pipeline, but exports via that channel dried up last December due to a row over payment for oil companies operating in the northern enclave.

The spat intensified in March when the Iraqi parliament passed the country's 2013 budget despite a boycott by Kurdish lawmakers, who withdrew from the assembly in protest at the amount they were allocated.

Kurdish lawmakers returned to Baghdad on Monday as part of an agreement that includes amending the budget and forming a committee to study the oil and gas law, which has been stuck in parliament for years due to a lack of consensus.

"It was a visit to break the ice and start a new phase for serious talks," Kurdish lawmaker Mahmoud Othman told Reuters.

"No final agreement was reached to resume oil exports from the Kurdistan region yet, but I can confirm that both parties are very close to resolving this problem very soon."

In recent years, the Kurds have antagonized Iraq's Shi'ite-led central government by signing deals on their own terms with international oil companies including Exxon Mobil, Total and Chevron Corp.

Baghdad says it alone has the right to control exploration and export of the world's fourth largest oil reserves, while the Kurds insist their right to do so is enshrined in Iraq's federal constitution, drawn up following the U.S.-led invasion in 2003.

Previous efforts to resolve their disagreements have amounted to little.

"We have had agreement after agreement and no action on implementation. So even if we do get a signed agreement, we need to be skeptical based on history that it will be implemented," said a Kurdistan-based industry source.

Even if a compromise were to be found, Kurdistan is already pursuing an increasingly independent oil policy and is building the last leg of its own export pipeline, in defiance of Baghdad and the United States, which fears it will precipitate the break-up of Iraq.

At a news conference in Arbil following the meetings, Kurdish Prime Minister Nechirvan Barzani said he did not expect differences with Baghdad to be buried "overnight" and the Kurds had alternatives if negotiations were unsuccessful.

"I hope we will be able to solve them with Baghdad and that is what we prefer, but we will not stand by with our arms folded and we have other options".

"HISTORY OF MISTRUST"

Iraqi Oil Ministry sources said a technical delegation from the Kurdistan Regional Government (KRG), including finance and energy officials, would meet their counterparts in Baghdad this week.

"Oil payments for the Kurdish region will have priority in talks before a deal to resume exports can be reached - that's the message we received from Kurdish officials," an Iraqi government official said on condition of anonymity.

Iraqi Prime Minister Nuri al-Maliki is also expected to pay a visit to Kurdistan, which he last came to in 2010, leading to the "Arbil Agreement" that paved the way for him to form a power-sharing government after months of wrangling.

Although that agreement, like others, failed to last, politicians and analysts say conditions may now be favorable for a rapprochement between Baghdad and Arbil, at least in the near-term and possibly up to parliamentary elections next year.

Facing an uprising by Iraq's Sunni minority, Maliki's Shi'ite-led government could prove more willing to make concessions to the Kurds so as to strengthen its own position.

"Iraq's Shi'ites cannot be fighting on two simultaneous fronts (Sunnis and Kurds), and it is in their interests to defuse one of them, even if temporarily," said a KRG source.

Political sources said Shi'ite Iran encouraged the latest dialogue to reinforce Maliki against the fallout of the conflict in neighboring Syria, where mainly Sunni rebels are fighting to topple a leader backed by Tehran.

Leaders in Iraq and Iran worry a demise of Syrian President Bashar al-Assad will make way for a Sunni regime hostile to their interests and weaken Shi'ite influence in the region.

Wathiq al-Hashimi, the Baghdad-based chairman of the Iraqi Group for Strategic Studies, doubted the "history of mistrust" between Baghdad and Arbil could be overcome, and said an agreement was certain to break down as soon as Maliki felt less vulnerable.

(Editing by James Jukwey)

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