Iraqi Kurdistan is close to signing a set of agreements with Turkey to build new oil and gas pipelines enabling the autonomous region to sell its oil in world markets by 2017.
The deals, which could have important geo-political consequences for the Middle East, could see Kurdistan exporting some 2 million barrels per day (bpd) of oil to world markets and at least 10 billion cubic metres per year of gas to Turkey.
Having abundant reserves of hydrocarbons, Iraqi Kurdistan has managed to improve its strained relationships with Ankara that used to have strong ties with Iraq's central Baghdad government and was involved in a decades-long fight with Kurdish militants on its own soil.
However, the growing energy demand, forcing the country to keep increasing imports, has facilitated the change of strategy, with Turkey now looking to take advantage of Kurdistan’s oil reserves.
"It is official and it is historic," a source close to the deal said. "For years, Turkey has deliberately avoided getting involved in northern Iraq but now it is the beginning of a new period. It was a bold but a very necessary move."
During a visit to Istanbul last week, Kurdistan Regional Government (KRG) prime minister Nechirvan Barzani and his Turkish counterparts agreed on the fundamentals of the deals and laid out technical details for a second, 1 million bpd, oil pipeline and a gas route from Iraq's north to Turkey, sources involved in the talks said.
Of special interest to Turkey is the foreseen gas pipeline. Forecasted to overtake the UK - Europe's third biggest power consumer - in a decade, Turkey is mostly dependent on supplies from Russia.
With the new pipeline from Kurdistan, Turkey will be able to import at least 10 billion cubic meters more cheaply than from current suppliers, sources said.
A gas purchasing agreement between the Turkish Energy Company (TEC) and Kurdistan is expected to be signed in December, according to the sources and the construction of the pipeline and gas processing plants, anticipated to cost billions of dollars, could start next year, with the first flow of gas targeted for early 2017.
Anglo-Turkish firm Genel Energy, headed by former BP chief executive Tony Hayward, is expected to be the first company to export gas to Turkey from its Miran and Bina Bawi fields, which contain sour gas.
Shipping the natural gas to European markets through a link to the Azeri-controlled Trans-Anatolian natural gas pipeline (TANAP) is another option, a second government source said.
Kurdistan has previously signed several deals with firms including US oil giant ExxonMobil, Chevron and Total as it seeks to develop its energy industry.
The first KRG-sponsored oil pipeline, which is almost complete, will connect to an existing Iraq-Turkey pipeline and begin carrying Kurdistan's oil to world markets from December, sources familiar with the project say.
However, the developments have infuriated Baghdad - which claims sole authority to manage Iraqi oil and says Kurdish efforts towards oil independence could lead to the break-up of Iraq.
Under Iraq's constitution, all oil export revenue goes through Baghdad. The autonomous Kurdish region is entitled to 17 per cent of the total, a windfall that has helped it flourish as a prosperous oasis safe from the violence that consumed the rest of Iraq in the decade since a US-led invasion.
However, the Kurds believe all of Iraq will benefit if they develop their region's own resources. Something Baghdad fears could empower them to seek independence.
The KRG said that despite revenues from the Kurdish oil will be paid to its accounts, they are ready to send 83 per cent of the income to Baghdad after deducting the autonomous region's share. Baghdad views such plans as illegal.