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How the new Chevron deal affects oil
dispute between Iraq’s govt and Kurdistan
29.7.2012
By Joel Wing —
Ekurd.net |
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July 29, 2012
The struggle between Baghdad and the Kurdistan
Regional Government (KRG) over Iraq’s energy policy
continues. In July 2012, Chevron announced that it
was buying into a joint venture in Erbil. This
followed the October 2011 deal between Exxon Mobil
and the KRG. These were the first two major oil
companies to come to terms with the Kurds, which
greatly angered the central government. It has
demanded that all contracts must be made with it.
There is talk that more large foreign companies
might be interested in Kurdistan as well. Recently,
the government of Prime Minister Nouri al-Maliki has
been feeling more assertive, because oil production
is taking off in southern Iraq lessoning the need
for any Kurdish petroleum. The only way for the KRG
to try to gain some leverage in this dispute is to
get big companies like Chevron, Exxon, and others to
enter its market, so that it can try to even the
playing field with Baghdad.
Chevron’s agreement with the Kurdistan Regional
Government was announced in July 2012. The company
bought out India’s Reliance Industries that had an
80% share in a joint venture with Austria’s OMV AG
for the Sarta and Rovi blocks in Erbil. As a result,
the Oil Ministry banned Chevron from any future
deals with it. Baghdad has always demanded that all
energy contracts go through it. Corporations that
have disregarded it have faced similar penalties
before. In this case however, it’s going to have
little affect. Going into Kurdistan Chevron must
have known how the central government was going to
respond, but was not deterred.
Chevron follows Exxon Mobil as the second major oil
company to do business in Kurdistan. In October
2011, Exxon signed a contract with the KRG for six
blocks. Baghdad objected to that deal as well. Prime
Minister Nouri al-Maliki recently sent a letter to
President Barak Obama asking him to intervene in the
matter. Unfortunately for the central government
Exxon is too large of a company to retaliate
against. Exxon was already working on the West Qurna
1 field in Basra when it decided to work in
Kurdistan as well. The Oil Ministry initially
threatened to cancel that contract, but has not done
so. If it did it would make an already difficult
situation worse. Many companies operating in
southern Iraq have complained about the bad business
environment, the red tape, the delays in getting
equipment and personnel into the country, and the
tough terms set by the Iraqi government that
severely limit profits. If the Oil Ministry were to
move against Exxon in any substantial way it and
others could decide to leave, and Iraq desperately
needs them to develop its oil industry. At the same
time, Maliki’s government is afraid that more energy
businesses will head towards Kurdistan now that
Exxon and Chevron have.
In June, the KRG’s Natural Resource Minister Ashti
Hawrami said that several other major oil companies
would shortly be doing business with it. There have
been various reports that Italy’s Eni, France’s
Total, Norway’s Statoil, and Russia’s Lukoil were
all interested in Kurdistan. Total might join the
U.S.’s Marathon Oil, while Lukoil could sign a deal
with the KRG to work in Western Zagros. All those
companies have worked with the Oil Ministry, and
Statoil even pulled out of southern Iraq, because it
didn’t like the working conditions there. That is
one of the major motivations to try Kurdistan
instead.
Attracting major oil companies has been part of
Kurdistan’s long-term strategy to develop its energy
resources. At first, only small and medium sized
companies were willing to work in the region.
Kurdistan was only open to exploration work
initially, and any business that went there would be
blacklisted by the Oil Ministry, and be denied
access to the much larger southern oil fields under
its control. As the difficulties of working there
have been exposed, interest in the KRG has
increased. In 2011 for instance, Tony Hayward, the
former CEO of British Petroleum took charge of the
Turkish Genel Enerji, one of the largest investors
in Kurdistan’s energy field. The KRG is more open to
investment than Baghdad, offers better terms, and
the promise of larger profits. The Kurds can only
hope to truly achieve their goals of becoming a
major oil producer if large firms like Exxon and
Chevron come there. Then Kurdistan will have more
leverage to pressure the central government to come
to terms with it, not objects to its oil deals, and
allow it to export.
The dispute over oil in Iraq is heating up. In April
2012, the Kurds stopped exports over a payment
dispute with the central government. That has
reduced it to smuggling to Iran and Turkey that
can’t bring in close to the revenues it was earning
before. Baghdad has also reduced its fuel shipments
to the KRG in retaliation for its independent energy
policy. No compromise is seen on either issue,
because Premier Maliki has the upper hand currently.
With oil production taking off in southern Iraq
there is no real need for Kurdish exports. Before
Baghdad would protest any deal signed with the
Kurds, blacklist the company,www.ekurd.net
and then ignore the matter. Now, the central
government is punishing Kurdistan. One way the
latter is trying to regain its position is by
drawing in more major energy companies. They are too
big for Maliki to take real action against. With
almost all of the corporations considering work in
Kurdistan already having contracts with the Oil
Ministry they might lead the two sides to come to
some type of agreement. Exxon and Chevron alone are
probably not enough to achieve that goal, but if
more companies were to join them, then the KRG might
finally have the leverage it needs against the prime
minister.
SOURCES
Agence France Presse, “French Total seeks business
in Iraqi Kurdistan: chief,” 3/13/12
Ali, Hawar Abdulrzaq, “Chevron Secures Major Deal in
Kurdistan, But More is to Come,” Rudaw, 7/19/12
Hadi, Hemn, “Maliki threatens foreign companies
investing in Kurdistan region,” AK News, 7/21/12
- “Total in talks to invest in Kurdistan’s oil,” AK
News, 5/19/12
International Business Times, “Total Close to
Securing Oil-and-Gas Exploration Rights in Iraqi
Kurdistan: Report,” 1/29/12
International Crisis Group, “Iraq And The Kurds: The
High-Stakes Hydrocarbons Gambit,” 4/19/12
Jacobs, Caroline and Boselli, Muriel, “UPDATE
3-Total latest oil group to shift Iraq focus to
Kurdistan,” Reuters, 2/10/12
Lando, Ben, “Chevron announces KRG block buy,” Iraq
Oil Report, 7/19/12
Mackey, Peg, “Iraq Kurdistan sees more oil deals
with majors soon,” Reuters, 6/19/12
Reed, Stanley, “Chevron Makes Oil Exploration Deal
in Iraqi Kurdistan,” New York Times, 7/19/12
Reuters, “Iraq blacklists Chevron for Kurdistan
deals,” 7/24/12
- “Iraq warns France against unsanctioned oil
deals,” 6/20/12
- “Shahristani says Total cannot sign Kurdistan
deals,” 2/12/12
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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