Royal Dutch Shell is focusing its efforts on natural resource development near Iraq's southern port cities, a source told the Financial Times.
Political rows over control of Iraqi oil and gas has overshadowed development in the energy-rich country. Baghdad is upset with its Kurdish counterparts and its dealings with major international energy companies like Shell.
Shell has pulled out of oil talks with the Kurdish government in Iraq to focus on natural gas developments near Iraq's southern port, the Times reports.
A source familiar with talks between Shell and Baghdad told the Times that meant both sides could reach a major deal on gas development in the south.
"Baghdad's real power lies in denying future contracts and Shell still had something else on the table," the source added.
Shell and Mitsubishi Corp. will work together on natural gas development in the country through a venture dubbed Basra Gas Co.
Most of the natural gas in Iraq is flared because the country lacks the infrastructure to develop the resource. The Times notes Iraq would get as much as 700 million cubic feet of gas per day for domestic use from the south. More than eight years after the U.S.-led invasion, parts of Baghdad still only get about 4 hours of power per day.