Media reports, citing oil sources, claimed that Kuwait and Dow Chemical Co are in talks with each other apparently for settling a $2.5 billion penalty which has been associated with a $17.4 billion petrochemical deal.

Kuwait is said to be ready for paying 10 per cent of the penalty under a mutually accepted formula.

Daily newspaper Al-Rai reported, "There are friendly unofficial negotiations with Dow Chemical to settle the $2.5 billion penalty before reaching arbitration."

It should be recalled that Kuwait, the fourth largest oil exporter in the world, had faced stiff opposition in the parliament for its deal with Dow. The incumbent government was charged for selling the interests of the country and the parliament sought immediate withdrawal of the petrochemical deal.