Iraq Tries To Deter Other Major Oil Companies From Signing With Kurds

Iraq’s government is afraid that Exxon Mobile’s deal with the Kurdistan Regional Government (KRG) might have opened the floodgates to other major oil companies doing the same. The Kurds have followed their own independent oil policy since 2002, even before Saddam Hussein was deposed. Dozens of foreign energy businesses have signed contracts with them since then, but all were small to medium in size. Baghdad blacklisted them from working in the rest of the country, knowing that none of them had plans to do so, and that none of them fit into its national petroleum policy. Now other large corporations, including France’s Total, have expressed interest in going to Kurdistan. The central government has recently warned the French about coming to an agreement with the Kurds, but is likely to be as unsuccessful as it was with Exxon.

Deputy Premier Hussein Shahristani has tried to stave off France’s Total from working with the Kurdistan Regional Government. In June 2012, Shahristani told France’s Ambassador to Iraq that French oil companies working in the country should not sign contracts with other entities, meaning the Kurds. This was the second time the deputy prime minister had issued a warning. Back in February, he said that no oil contract could be signed without going through the Oil Ministry when stories first emerged that Total was interested in the KRG. Shahristani is in charge of Iraq’s energy policy. He has been the strongest opponent of the Kurds’ independent petroleum strategy ever since he was the Oil Minister in Prime Minister Nouri al-Maliki’s first administration. It was no surprise then that he was at the forefront of trying to deter Total from coming to an agreement with the KRG after it already won a contract for the Halfaya field in Maysan in 2009 with the central government. 

Total's CEO de Margerie has said that his company is in talks with Kurdistan for a new oil deal there (Arabian Business)

Shahristani’s warnings came in response to news stories of Total becoming more interested in what the Kurds had to offer. In mid-June, KRG Natural Resource Minister Ashti Hawrami told the press that other major oil companies were going to sign contracts with his ministry after Exxon did. That came amongst reports that both Total and Norway’s Statoil might enter Kurdistan. In fact, the CEO of Total, Christophe de Margerie stated that his company was already in talks with the Kurds in March, and might have sent delegates to the region as early as January. The reason why Total has threatened its existing contract with the Oil Ministry is because it has grown unhappy with the terms it received, and has been complaining about them for almost a year now. CEO Margerie has speculated that the company may not be able to recover its initial investment with the low remuneration fees it agreed to for instance. Although Kurdistan has much smaller reserves, and the initial work might just be for exploration, the KRG offers more profits than the central government, and a better business environment with less red tape. These were the exact same reasons why Exxon entered the Kurdish market at the end of 2010. It too grew tired of the endless delays it found with Baghdad over everything from getting its workers into the country to payments. It also feels that it should be able to work in any part of the country. Total seems to be following the exact same strategy.

Exxon’s deal with the Kurds has opened up all kinds of problems for the central government. Baghdad has been unsuccessful in trying to change its mind, because it knows that the corporation has the upper hand. If the Oil Ministry were to void its contract it would not only be open to a lawsuit, but would also add more problems to the already difficult relationship that it has with many of the other energy companies working in southern Iraq. Total finds itself in the same situation. It too has grown tired of the hassles it has to go through at the Halfaya field, especially because it is worried that it will never make any money off of it. It therefore is following Exxon’s lead by entering into negotiations with the KRG over working there. It also believes that it should be able to operate in both northern and southern Iraq. The central government finds itself in a battle of wills with the very corporations that it initially welcomed into the country three years ago. Baghdad appears to be losing, especially if Total does eventually come to terms with the KRG, but it still holds a few cards in its hands. The two most important of which are that one, it controls the pipelines meaning that it can cut off Kurdish exports, and two, with output in the south taking off it doesn’t need the Kurdish contribution like it did before. That means unless the KRG and Baghdad come to some sort of compromise, the foreign firms may be stuck doing nothing but exploratory work and limited production for local use and smuggling. Exxon and now Total seem to be trying to force the hand of the central government into coming to some sort of agreement with the Kurds, but it’s yet to be seen who will win. As of now, the Maliki government seems to be sticking to its guns.

SOURCES

Agence France Presse, “French Total seeks business in Iraqi Kurdistan: chief,” 3/13/12

Hadi, Hemn, “Total in talks to invest in Kurdistan’s oil,” AK News, 5/19/12

Hafidh, Hassan, “Total Submits Plan To Utilize Gas From Iraq Missan Oil Fields –Official,” Dow Jones, 1/27/12

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

Reuters, “Iraq warns France against unsanctioned oil deals,” 6/20/12

- “Shahristani says Total cannot sign Kurdistan deals,” 2/12/12