Tuesday, March 20, 2012

Exxon Mobile Trying To Have It Both Ways In Iraq, Developing Oil Fields In The South And North

The soap opera over Exxon Mobil’s deal with the Kurdistan Regional Government (KRG) took another twist in March. The Iraqi Oil Minister said that the company had decided to suspend its work with the Kurds. They responded by saying they had heard no such thing, and that they fully expected Exxon to begin operations in the region. Beforehand it appeared that the corporation wanted it both ways, to keep its contract with Baghdad for a field in Basra, while simultaneously beginning work in Kurdistan. If it is still following this policy, than perhaps its statement to the central government was just its bidding time until the differences over its agreement with the Kurds can be worked out.

On March 16, 2002, the Iraqi government said that Exxon was going to hold off on its work with the Kurds. Oil Minister Abdul Karim Luaibi told the press that his ministry had received a letter from the company in early March saying that it was suspending its contract with the Kurdistan Regional Government (KRG). Luaibi remarked that he was still looking for Exxon to clarify its position on the matter. March was the month Baghdad set as a deadline for the corporation to explain what it was doing. Back in November 2011, its contract with the Kurds was announced for six oil and gas fields. Before, Exxon had refused to make any public statements about it, but in March, its Chief Executive Officer Rex Tillerson told the Wall Street Journal that it wanted to develop both the West Qurna 1 field in Basra, which it won rights to in 2009, and the blocks in Kurdistan. It seemed like the business’ code of silence was part of this strategy, because while it refused to say anything, quietly it was sending people to northern Iraq to scout out possible sites for it to set up work. It also continued to operate the West Qurna 1 field. In fact in March, Exxon and the Oil Ministry finally came to an agreement about payments for its work there, showing that it had no real plans to give up it rights to the block in southern Iraq.

The Kurds were predictably upset with Minister Luaibi’s remarks to the press. They responded the next day saying that Exxon was still working in the region. An aide to KRG President Massoud Barzani was quoted in the media saying that it had no knowledge of any letter sent by the company to Baghdad. Again, both statements by government officials could be correct. Exxon could be suspending moving forward with its contract with the Kurds for now, but not giving up on the deal. It may want the regional and central governments to resolve their issues over its work, before moving full throttle ahead with setting up business in Kurdistan. The problem is that Baghdad has shown no signs of compromise. Iraqi officials such as Deputy Premier Hussein Shahristani has called Kurdish oil deals illegal, claiming that only the central authorities have the right to sign contracts with foreign companies. They fear that if the Kurds are able to attract any major foreign concerns such as Exxon, it will make their negotiations with them more difficult, and could lead to other provinces demanding the same type of authority. Shahristani and Prime Minister Nouri al-Maliki are both centralists who want to increase the power of Baghdad over the country’s affairs, especially its energy resources, which account for 90% of the government’s revenue.

In all likelihood, Exxon will not suspend its work in Kurdistan. It wants to work in both southern and northern Iraq, and is quietly trying to achieve this goal. The Iraqi government has made plenty of threats against the corporation to try to make it give up its deal with Kurdistan, but so far those have been largely ineffective. The letter to the Oil Ministry may be considered a false victory by the central authorities. If Exxon does stop any work in Kurdistan, it’s likely only to be temporary. As one of the largest oil companies in the world, Exxon has plenty of heft to put behind its strategy within the country. Baghdad may be swayed by the fact that if it tries any serious sanctions against the corporation, it could scare off the other ones already operating within the nation, and others interested in entering its oil sector. At the same time, the leadership of the central government seems intent on holding sole authority over oil rights. How this will work out is yet to be seen, but Exxon could be the cause of a serious power shift in Iraq.


Aqrawi, Shamal, “Kurds say Exxon still working in North Iraq,” Reuters, 3/17/12

Mackey, Peg, “Exxon, Iraq agree on West Qurna oilfield payments,” Reuters, 3/12/12

Reuters, “Exxon Scouts already in Erbil,” Iraq Business News, 1/26/12
- “Iraq says Exxon Mobil freezes Kurdistan deal,” 3/16/12
- “Iraq sets deadline for Exxon on Kurdistan oil deals,” 3/6/12

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