Wednesday, April 25, 2012

Exxon’s Banning From Iraq’s Fourth Energy Auction Will Not Stop Its Work In The Country

In April 2012, Iraq’s Oil Ministry banned Exxon Mobil from its fourth auction for oil and gas fields in the country. At the same time, the Iraqi government has allowed the company to continue working on its existing contract in southern Iraq. The oil giant is also moving ahead with a deal that it signed with the Kurds. All together, that means that the exclusion will not seriously affect Exxon’s business in Iraq.

The Iraqi government has been threatening sanctions against Exxon Mobile for an oil and gas deal it made with the Kurdistan Regional Government (KRG). The company signed the contract for six oil and gas blocks in October 2011, and it became public in November. It includes three fields in Kurdistan, and three in disputed territories of northern Iraq. As a result, the Oil Ministry banned the company from its fourth energy bidding round to be held in May. Baghdad has called all the Kurds’ energy deals illegal, because they did not go through the central government. The Oil Ministry and Prime Minister Nouri al-Maliki have been trying to concentrate power in Baghdad, and controlling the country’s natural resources is part of that policy. It’s for that reason that they sanctioned Exxon, hoping to dissuade it from going through with its work in Kurdistan.

At the same time, there have been no other actions taken against the company. The Oil Ministry has warned Exxon that its dealings with the Kurds could threaten its contract for the West Qurna 1 field in Basra, but that has not happened. In fact, in April, the Ministry said that it could continue work there. Deputy Premier Hussein Shahristani who is in charge of the country’s energy policy, also said that the central government is open to talks about the three blocks that Exxon signed for in Kurdistan, but not those in the disputed areas. Those were both reversals for Baghdad. It has consistently objected to any contracts with the Kurds, and Deputy Premier Shahristani has been at the forefront of that effort since he was the Oil Minister in the first Maliki administration. It seems like despite the threatening rhetoric, the Iraqi government is willing to find some kind of compromise with Exxon.

This also comes on top of contradictory statements about Exxon’s work in Kurdistan. On April 2, Oil Minister Abdul Karim Luaibi said that the company sent two letters to the Oil Ministry saying that it would halt its work in Kurdistan. That day, the KRG Natural Resource Minister Ashti Hawrami denied that claim, saying that Exxon was in daily contact with his ministry. KRG President Massoud Barzani also met with the company’s CEO Rex Tillerson on a trip to Washington in April. The previous month, Tillerson said that he wanted to work in both parts of Iraq. That has been the strategy of Exxon all along. The Oil Ministry controls the largest petroleum fields in the country, but its terms severely limit profits, it has been slow in paying Exxon, and its red tape makes doing business difficult at best sometimes. Kurdistan on the other hand, has much smaller energy deposits, but its contracts, bureaucracy, and environment are much more favorable. Exxon wants to take advantage of both, which is why it signed for West Qurna 1 in 2009 with Baghdad, and the six blocks in 2011 with the Kurds.

Despite the press that Exxon’s banning from the next energy auction received, the Iraqi government’s action is not a real damper to the company’s plans. There was no real news that the company was interested in the bidding round to begin with. It also got the Oil Ministry’s approval to continue working on West Qurna 1, and it is moving ahead with its contacts with Kurdistan as well. There appears to be no real barriers to the corporation’s goal of working in both the southern and northern portions of Iraq. That could be a real game changer, because if Exxon can pull off these deals, other major companies will likely follow suit. That will be a major challenge to Maliki’s policies of concentrating authority in Baghdad. This battle is not over yet however, because the Oil Ministry still has control over the pipelines that are used for exports, which is the only way that foreign companies can make money from investing in Iraq’s oil and gas. The Kurds have extensive smuggling operations to Iran and Turkey, but there’s no way those can generate enough revenue to satisfy businesses, especially ones as large as Exxon. That means some kind of compromise will have to be worked out between Baghdad and Kurdistan out of political necessity. The question now is how long that will take, because Iraq is not known for acting fast, especially on very important issues like energy policy.


Bloomberg, “KRG Denies Exxon has ‘Frozen’ Oil Contract,” Iraq Business News, 4/4/12

Fordham, Alice and Morse, Dan, “Exxon Mobil dispute deepens Arab-Kurd split in Iraq,” Washington Post, 4/5/12

Iraq Business News, “Exxon Mobil Rumoured to Abandon West Qurna,” 4/5/12

Al-Jurani, Nabil, “Iraq boosts oil export capacity in Gulf,” Business Week, 4/20/12

Lawler, Alex and Mackey, Peg, “UPDATE 2-Iraq seen sustaining southern oil exports surge,” Reuters, 4/16/12

Reuters, “Iraq’s Luaibi says Exxon freezes Kurdish oil deals,” 4/2/12
- “UPDATE 1-Iraq says Exxon won’t move on Kurdish oil blocs,” 4/18/12

Schreck, Adam, “Iraq suggests Exxon deals with Kurds could stand,” Associated Press, 4/12/12

UPI, “Exxon committed to Iraqi Kurdistan,” 4/6/12

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