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UPDATE 2-Iraqi Kurds link Kirkuk to own oil pipeline, plan more exports

(Releads on pipeline link, adds background, quotes)

LONDON, June 17 (Reuters) - Iraqi Kurdistan has built a link connecting Kirkuk to its newly-built pipeline to Turkey, its minister of natural resources said, potentially cementing Kurdish control over the northern oil hub and reducing its reliance on Baghdad.

The link could allow the Kurds to start exports of Kirkuk crude oil through their own network, giving them a major source of independent revenue and boosting any ambitions of sovereign statehood as Iraq falls into increasing disarray.

The new link connects Kirkuk's Avana dome to the Khurmala dome out of which the Kurdish pipeline runs.

"That blue line was finished," Ashti Hawrami, the Kurdistan Regional Government (KRG) minister for natural resources, told a conference in London, pointing to a map of the pipelines.

Baghdad's military retreat from the north under a lightning assault led by the Islamic State of Iraq and the Levant (ISIL) last week allowed the KRG's Peshmerga forces to seize control of long-disputed Kirkuk and its oil reserves - the potential economic lynchpin of a sovereign Kurdish entity.

But the main 600,000 bpd Kirkuk pipeline, which accounted for the bulk of Iraq's northern crude oil exports, has been offline since March following insurgent attacks.

Attempts to repair it have been thwarted by Islamic militants in the region, who have targeted engineers trying to fix sections of the line that pass through territory outside KRG control.

Adnan al-Janabi, a senior Sunni politician and head of Iraq's oil and gas committee, said that Kirkuk's production would likely be out for the time being along with some fields in the Salahuddin area but that oil production inside KRG areas would continue uninterrupted.

Janabi, a critic of the Baghdad government, told the conference that the Kurds had effectively realised their "dream of a greater Kurdistan" and the Iraqi army lacked the capability to take the oil city back easily.

"Kurdistan of Iraq is already on its national desired border and I don't think it will be easy to push back," he said.

"It includes parts of Kirkuk, Diala, Salahuddin... They are already there, already running the place and I don't think anyone will challenge them."

PUSH AHEAD WITH EXPORTS

With Baghdad busy fighting ISIL, the Kurds are pushing ahead with oil exports that could help bolster their autonomy.

Hawrami said the Kurds expected to load two more tankers of crude from their newly built pipeline this week at the Turkish port of Ceyhan.

The KRG began independent exports in May from its pipeline to Turkey, which by-passes Baghdad's system. So far, two tankers have loaded that oil.

For years, the KRG and Baghdad have been locked in a struggle over how to divide the country's oil revenue and budget. Baghdad opposes independent Kurdish oil exports and says all marketing must go through the state entity SOMO.

The divisions have significantly eroded trust and Hawrami said that the central government had withheld budget payments to the region so far this year and before that was giving only around 10 percent instead of an agreed 17 percent.

Oil exports will increase to 200,000-250,000 barrels per day in July, and then to 400,000 bpd by the year-end, Hawrami said, allowing the KRG to catch up with the entitlement that Baghdad never paid.

Speaking at the same conference, Thamir Ghadban, an oil official and advisor to the Iraqi prime minister, declined to get into the numbers but said the Kurds could not pick and choose from the country's constitution and should work through the central government.

Baghdad's warnings have not deterred the Kurds so far.

"They pushed us to do this," Hawrami said.

"We're going to create facts on the ground... Don't ask me to surrender my rights into your hands."

(Writing by Lin Noueihed, editing by David Evans)