Thursday, February 2, 2012

What’s Next For Exxon’s Oil Deal With Iraq’s Kurds?

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 Saleh 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, 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.


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

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