Thursday, June 21, 2012

Exxon Deal With Iraq’s Kurds Gains Powerful New Ally, Ninewa’s Governor, But Will It Backfire On Him?

At the end of 2011, Exxon Mobile threw a monkey wrench into Iraq’s oil plans. In November, it was announced that it had signed a contract with the Kurdistan Regional Government (KRG) to explore for oil and gas. Not only did this defy the wishes of Baghdad to control the country’s energy policy, but half of the blocks that the corporation was going to work on were in disputed territories of northern Iraq upsetting some politicians there as well. One of those early opponents, Governor Atheel Nujafi of Ninewa governorate, has suddenly switched gears, and come out in support of the deal. This may backfire on him, because he could be undermining his own local support.
Gov. Nujafi of Ninewa went from an opponent of the Exxon deal that would involve exploring for oil and gas in the disputed areas of the province to being a supporter (Shafaq News)
Governor Atheel Nujafi of Ninewa recently said that he changed his stance on Exxon’s contract with the Kurds. At first, the governor opposed the deal, because it included two tracts that were in the disputed territories of his province. The disputed areas are parts of Iraq that Saddam Hussein attempted to cleanse of Kurds, and which they now want to annex to Kurdistan. In June, Governor Nujafi gave an interview with Iraq Oil Report where he let it be known that he had reversed course, and now had no objections to Exxon entering the governorate. This was quite a change, because Ninewa sent a delegation to Baghdad to state its opposition to the deal right after it became public in November 2011. Nujafi told Iraq Oil Report that he now believed that Exxon could help relations between Arabs and Kurds in the disputed areas, and that local authorities would not stand in its way as a result. Exxon and Kurdish official met with the governor before his interview, which likely swayed his opinion. His dramatic turnaround led to speculation that Nujafi cut some sort of secret deal with the Kurds. A parliamentarian from the province claimed that Nujafi was willing to give away Ninewa’s disputed areas to the Kurds, while a media adviser to Prime Minister Nouri al-Maliki accused the governor of complicity with the Kurds and Exxon as well. The governor’s decision has caused such controversy, because it seemingly came out of nowhere. Nujafi originally came into office after the 2009 provincial elections where his al-Hadbaa party ran against the Kurdish presence in the governorate, and their attempts to annex the disputed areas. In recent months he has gone through a transformation, convincing the Kurdish Brotherhood List to join the provincial council, which it had boycotted since the 2009 voting. That angered parts of his list that also demanded action against the Exxon deal. Now he took it farther by once again siding with the Kurds after he originally said that Exxon’s presence would be a threat to the province.

Governor Nujafi’s statements came amongst more contradictory news about the progress of the deal. First, in June 2012, Deputy Premier Hussein Shahristani who is in charge of the country’s energy policy claimed that Exxon had promised to stop its operations in Kurdistan until an agreement was reached between Baghdad and the Kurds over petroleum contracts. An official from his office said that Exxon had sent two letters to the Oil Ministry on the issue. At the same time, Maliki’s media adviser Ali Hussein Musawi told the press that Baghdad asked Washington to intervene with Exxon, claiming that its deal with Kurdistan could destabilize the country. Back in December, the premier himself met with Exxon officials while on a trip to Washington asking it to freeze its plans with the Kurds. Then in March and April, the Oil Ministry claimed it received two notices from Exxon that it was stopping its operations in Kurdistan. March was the month the Oil Ministry had set as a deadline for Exxon to explain its position with regards to its contract with the KRG. All of those statements were contradicted by the Kurds and Exxon. The March letter that the company allegedly sent to Baghdad said it would not start work in Kurdistan until the end of 2012, but that was sort of a false promise, because the corporation could not operate in Kurdistan any time earlier. That same month, Exxon CEO Tex Tillerson told the Wall Street Journal that he was committed to working in all parts of Iraq, meaning both in southern and northern Iraq. On April 2, the Kurds’ Natural Resource Minister Asthi Hawrami said that not only was Exxon not stopping its work as the Oil Ministry had claimed, but that he was in daily contact with its executives. The next month, President of Kurdistan Massoud Barzani met with Tillerson in Washington, and he confirmed that the company had no intention of backing out of its contract. Finally, Exxon has set up offices in Irbil, is doing preparatory work there, and in June, there was talk that it had issued a tender for drilling rigs for its new deal. Despite what officials from the central government said, it was obvious that Exxon was committed to their contract with the Kurds. The company was upset with the one that it signed with the Oil Ministry back in 2009, and disliked the conditions it found in southern Iraq. That led it to Kurdistan where the business environment and the deal offered were much better. Although the work is only for exploration, Exxon obviously believed that it could eventually export as well.

Why Governor Nujafi flipped on the Exxon deal still has no clear explanation. Saying that it might help with Arab-Kurd relations in the province makes no sense since so many Arabs in Ninewa are opposed to Kurdish aspirations there. It has also cost him support within his own al-Hadbaa party, which he was already losing over his talks with the Kurds. Some have hypothesized that Nujafi was already on the outs with al-Hadbaa, and therefore moved towards the Kurds to try to win their support so that he could stay in office after the 2013 provincial elections. That doesn’t seem to hold water either as he would have to drop almost everything he ran on in 2009, while keeping part of his al-Hadbaa party loyal to him, and winning over the Kurdish list. That seems a tall order. Another theory is that Nujafi could have seen the writing on the wall that Exxon was going to be entering Ninewa no matter how much Baghdad and local officials complained, and therefore has tried to adapt to the situation as best he could by welcoming them to try to get some benefits. The problem with that is that there are few benefits to be had from oil deals. Petroleum is not labor intensive, and foreign companies and workers usually do all the service work. There’s simply not enough information available at this time to determine whether any of these ideas are true or not. What is for sure is that Exxon is going ahead with its plans, which is going to greatly complicate relations not only within Ninewa, but within Iraq as a whole as it is going to pit all kinds of forces against each other to determine who has control over the country’s natural resources.


Adel, Shaymaa, “Kurds to drill for oil in disputed areas in Iraq’s Mosul,” Azzaman, 6/11/12

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

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- “Iraq Kurdistan sees more oil deals with majors soon,” Reuters, 6/19/12

Neuhof, Florian, “Iraq blocks Exxon from next round of licensing,” The National, 2/14/12

Rasheed, Ahmed, “Iraq set to auction new oil, gas blocks,” Reuters, 5/28/12

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Reuters, “Exxon Scouts already in Erbil,” Iraq Business News, 1/26/12
- “Iraq says Exxon Mobil freezes Kurdistan deal,” 3/16/12
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- “Iraq’s Luaibi says Exxon freezes Kurdish oil deals,” 4/2/12

Al Sumaria, “Shahristani: Exxon Mobil has pledged to freeze its work until a consensus region of Baghdad and Erbil,” 6/20/12

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- “Exxon confirms Kurdistan deals,” Iraq Oil Report, 2/25/12


Aymenn Jawad Al-Tamimi said...


You write:

***Another theory is that Nujafi could have seen the writing on the wall that Exxon was going to be entering Ninewa no matter how much Baghdad and local officials complained, and therefore has tried to adapt to the situation as best he could by welcoming them to try to get some benefits***

Surely this theory is the correct one? Yes, petroleum is indeed not labor intensive and there are not likely to be many real benefits, as you note, but it's not necessarily the case that he must be aware of these problems. In a similar vein, Baghdad seems oblivious to the fact that the expansion of the oil industry and growing dependence on it will simply create a vicious cycle that ultimately prevents liberalisation and expansion of the private sector.

Joel Wing said...

I think the problem with that idea is that since it's a Kurdish deal for exploration, Ninewa will get probably absolutely nothing out of it. Opposing it would at least keep his constituency.

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