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What’s Next For Exxon’s Oil Deal With
Iraq's Kurds?
3.2.2012
By Joel Wing — ekurd.net |
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February 3, 2012
On October 18, 2011, Exxon Mobile and the Kurdistan
Regional Government (KRG) signed a deal to work on
six oil and gas tracts in northern Iraq. When it was
made public the following month, it led to an outcry
by the central government. At first, it seemed like
Baghdad held the upper hand, and it might be able to
get the oil major to back off. The latest news
however, seems to point to Exxon moving ahead with
the contract, despite the protestations of the Iraqi
government.
Exxon has said nothing official about its plans for
Kurdistan, but it appears to be moving forward. On
January 26, 2012, Reuters reported that the company
had people in northern Iraq scouting locations for
living and work facilities. Exxon officials
allegedly met with the Kurdistan Regional Government
(KRG) Natural Resource Minister Ashti Hawrami as
well. Outgoing Kurdish Premier Barham Salih has said
that the Exxon deal was constitutional, and they
stand behind it. The Kurds are obviously anxious to
see this come to fruition as it would be the first
time a major international energy company agreed to
work with them. It could attract others, and give
the region more leverage vis-à-vis Baghdad on oil
and gas policy. Exxon on the other hand, seems to be
quietly preparing the ground work for it to enter
Kurdistan, and move ahead with developing the fields
it signed up for.
The central government was originally incensed over
this issue. Starting in late-November, officials in
Baghdad released a barrage of verbal attacks upon
Exxon and the Kurds. The Oil Ministry threatened to
exclude Exxon from the planned 4th bidding round for
new oil and gas fields in 2012 if the company didn’t
cancel its deal with the Kurds. The Ministry went on
to say that the contract was illegal. Oil Minister
Abdul Karim Luaibi claimed that the Kurds could not
hold their own negotiations with foreign oil
companies. It demanded that Exxon decide between
working in southern Iraq on the West Qurna Phase 1
field in Basra or Kurdistan.
In 2009, Exxon won an
auction to develop West Qurna, which has 8.7 million
barrels in reserves. Next, Deputy Premier Hussein
Shahristani who is charge of energy policy announced
in December that Baghdad was considering sanctions
against Exxon. Prime Minister Maliki issued the most
fiery statement, claiming that if the corporation
moved ahead it could cause war, because three of the
six blocs it signed for are in disputed territories
in Tamim and Ninewa provinces. Maliki has also
threatened to cancel Exxon’s West Qurna deal in
retaliation. Finally, Governor Atheel Nujafi of
Ninewa spoke out against the Exxon deal, and the
provincial council there voted for Baghdad to send
troops to stop the company from working there. The
Maliki government’s entire oil policy has been based
upon asserting the authority of the central
government over all aspects of the industry. The
Exxon-Kurd contract therefore represents a threat to
everything the administration has been working for,
because it did not involve the Oil Ministry. That’s
why there were so many attacks upon the deal from
officials in Baghdad.
There are other elements at play as well in this
drama. One, is that Exxon is owed $50 million for
two years worth of work at West Qurna Phase 1.
Allegedly red tape is holding up the payments, and
the problem is being worked on. Until that happens
however, Exxon is working for free in southern Iraq,
and incurring huge costs at the same time. Two,
other major oil companies seem interested in
entering Kurdistan. France’s Total for instance, is
said to be exploring possible deals in northern
Iraq. The first issue is a major one. Exxon has
expressed many complaints about the contract it
signed with the Oil Ministry in 2009, and the fact
that it is not garnering any profits obviously
undermines any leverage Baghdad may have in its
talks with the company over Kurdistan. That gives
Exxon an incentive to move north, because it might
actually get paid, and the threats by the central
government to take action against West Qurna do not
hold as much weight. The second one complicates the
dispute even more. If other big oil companies are
willing to do business with the Kurds, it adds fuel
to the fire between the two sides.
As things currently stand, it seems like Exxon might
have gotten the better of this situation. While work
in Kurdistan cannot be expected to start anytime
soon, it appears that the corporation will
eventually work there. It doesn’t look like Baghdad
will sanction it either, as it included Exxon in the
up coming fourth bidding round despite threats to
not do so. What happens next is the big question.
Will Exxon work in the three fields that are in
disputed territories? Could this lead to a
compromise between Baghdad and Kurdistan? What
affect will this have upon Maliki’s State of Law
list is also important. Deputy Premier Shahristani
has been in charge of the country’s oil policy for
years now since he was the Oil Minister in the first
Maliki administration. He is also a major part of
the State of Law coalition, and has his own
independent power base within the party. He has been
the most vocal opponent of the Kurds’ energy
strategy. This might force his hand to either
re-evaluate his position, or up his attacks. That
could have wide ranging affects upon Iraq,www.ekurd.net
because it could complicate the Oil Ministry’s
attempts to sign new contracts. Companies are
already complaining about their existing deals like
Exxon has, and the 4th bidding round has been
delayed once again, because corporations are asking
for better terms. Continued threats against Exxon
would only make these negotiations more difficult.
Iraq thus finds itself at a crossroads in its oil
policy. Exxon is slowly, but surely starting its
work in Kurdistan, forcing Baghdad to respond. How
it deals with the situation will likely require it
to change its entire approach to foreign companies.
SOURCES
Agence France Presse, “Exxon to reconsider Kurdistan
deal: Iraqi PM,” 12/15/11
- “Iraq’s Kurdistan insists Exxon oil deal is
constitutional,” Al Arabiya, 11/25/11
- “Kurds must decide to stay or leave: Iraq
minister,” 12/9/11
Ajrash, Kadhim and Razzouk, Nayla, “Iraq Oil Output
Has Reached a 20-Year High, Shahristani Says,”
Bloomberg, 12/22/11
AK News, “Iraq to exclude Exxon Mobil from 4th oil
licensing round,” 11/26/11
Ali, Hussam, “Committee calls for transparent oil,”
AK News, 11/15/11
Bergin, Tom and Farge, Emma, “WRAPUP 1-Kurd, Baghdad
oil officials met on Exxon spat,” Reuters, 11/17/11
Brosk, Raman, “Rising criticism of Shahristani’s
position in Exxon Mobile dispute,” AK News, 11/15/11
Dagher, Sam, “Iraq Won’t Cancel ExxonMobil Deal,”
Wall Street Journal, 12/9/11
Dagher, Sam and Ammar, Munaf, “Iraq Leader Warns of
Coalition’s End,” Wall Street Journal, 12/21/11
Falush, Simon and Cohn, Carolyn, “Iraq attacks Exxon
for signing deal with Kurdish region,” Reuters,
11/22/11
Hafidh, Hassan, “Total Submits Plan To Utilize Gas
From Iraq Missan Oil Fields –Official,” Dow Jones,
1/27/12
Hafidh, Hassan and Herron, James, “ExxonMobil May
Lose Other Iraq Oil Contact On Kurdish Deal – Govt,”
Dow Jones, 11/11/11
International Business Times, “Total Close to
Securing Oil-and-Gas Exploration Rights in Iraqi
Kurdistan: Report,” 1/29/12
Kramer, Andrew, “Iraq Criticizes Exxon Mobil for Its
Deal With the Kurds,” New York Times, 11/13/11
Kramer, Andrew and Werdigier, Julia, “Exxon Spars
With Iraq Over Lack of Payment,” New York Times,
12/22/11
Lando, Ben, “All About Kurdish Oil : Q&A: Ashti
Hawrami, the Kurdish minister of natural resources,”
Iraq Oil Report, 11/15/11
Pfeifer, Sylvia, “Exxon signs Kurd exploration
contracts,” Financial Times, 11/10/11
Pfeifer, Sylvia and Blas, Javier, “Shell pulls out
of Kurdistan oil talks,” Financial Times, 11/16/11
Razzouk, Nayla and Ajrash, Kadhim, “Iraq Hasn’t
Agreed to Recognize Kurdish Drilling Contracts,”
Bloomberg, 11/12/11
Reuters, “Exxon Scouts already in Erbil,” Iraq
Business News, 1/26/12
Al-Salhy, Suadad, “Iraq says to act against Exxon
over Kurd deal,” Reuters, 11/16/11
Serle, Jack, “Exxon Mobil Corp. at center of oil
row,” AK News, 11/14/11
Sowell, Kirk, “Inside Iraqi Politics No. 28,”
12/5/11
Al-Wannan, Jaafar, “Energy spat violates
Erbil-Baghdad agreement,” AK News, 11/13/11
Joel Wing, with an MA in International Relations,
Joel Wing has been researching and writing about
Iraq since 2002. His acclaimed blog, Musings on
Iraq, is currently listed by the New York Times and
the World Politics Review. In addition, Mr. Wing’s
work has been cited by the Center for Strategic and
International Studies, the Guardian and the
Washington Independent. You may visit his Blog
Musings On Iraq at musingsoniraq.blogspot.com
Copyright © 2012 ekurd.net
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