Rosneft has signed a deal with Iraq’s semi-autonomous Kurdistan to develop five oil blocks, cementing ties with the region even as tensions over sovereignty flare into armed clashes between Kurdish forces and Iraqi government troops.

Russia’s biggest crude producer signed “documents required to put in force” production-sharing agreements with the Kurdistan Regional Government, giving Rosneft 80 per cent of the projects, the company said. Rosneft may pay a fee of as much as US$400 million, half of which could be repaid in oil pumped from the deposits, it said.

The blocks may have some 670 million barrels of recoverable oil reserves according to conservative estimates, with full-field production possible from 2021 if exploration works are successful, Rosneft said. Exploration and “pilot” production is seen as early as next year.

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“The new agreements will allow us to talk about full-fledged entry of the company in one of the most promising regions,” Rosneft said. The terms of the agreements are similar to what the KRG has with other international companies, it said.

The KRG, emboldened by the success of nascent crude exports, held a referendum on September 25 that overwhelmingly favoured independence from Baghdad. The non-binding vote included the oil-rich Kirkuk province, despite competing claims to the ethnically mixed area which lies outside the KRG-ruled Kurdish region. Tensions over Kirkuk turned into open conflict this week.

Rosneft agreed in February to pre-purchase crude from the Kurds for two years, becoming the first oil major to buy directly from the KRG. A week before the independence vote, the Kremlin-backed company announced talks on funding a natural-gas pipeline to Europe from Kurdistan with a possible deal seen by the end of this year.

Russia has said it has refrained from any involvement in the power struggle between Baghdad and the KRG. “We are not trying to provoke anything,” the president Vladimir Putin said this month. “We are not interfering.”