Why Kurdish oil deals have Baghdad in a bind

Why Kurdish oil deals have Baghdad in a bind

But barking threats at Exxon may be all Baghdad can do; foreign oil firms and Iraq's autonomous Kurdistan have tested Shahristani's patience for months by drawing up oil accords the central government dismisses as illegal. Baghdad insists it alone has the right to export Iraqi crude.

September 6, 2012 6:14 by Reuters

When Iraq’s Deputy Prime Minister Hussain al-Shahristani met Exxon Mobil executives in Baghdad two months ago, he could hardly control his emotions. His anger boiling over, the Iraqi oil chief threatened to kick the Americans out of the country.

With Exxon and other foreign oil majors upsetting Baghdad by signing exploration deals Iraq’s autonomous Kurdistan region, Shahristani’s rage was not hard to understand.

Nine months after U.S. troops left, the oil contracts dispute is part of a broader political feud between the Baghdad government and Kurdistan over oil rights, territory and regional autonomy that is straining Iraq’s uneasy federal union.

Other majors Chevron, Total and Gazprom have joined Exxon with their own deals in Kurdistan, provoking warnings from Baghdad their southern Iraqi oil deals with the federal government might be at risk.

But the might of Exxon has caught the oil ministry in a bind and officials say privately any action against the firm is unlikely in the near future. With few assets exposed to Baghdad, other majors in Kurdistan may also escape unpunished.

Exxon operates West Qurna-1, the 8.7 billion-barrel field in southern Iraq, producing 406,000 barrels per day, and earning a healthy chunk of Iraq’s central government petrodollars.

“We have to think twice about pushing Exxon out of West Qurna. It’s the operator of a field with crucial output. It’s a problem, a big problem for us,” said a senior oil official who was involved in drafting the West Qurna contract.

FRUSTRATED BAGHDAD

Executives from Exxon Mobil would have known even before the July meeting with Shahristani that they had angered the Baghdad government, but analysts say it was a deliberate calculation as they played rival interests in Iraq off against each other.

Exxon was the first company to flex its muscle and challenge Baghdad’s authority by independently signing for six blocs to explore for oil with the Kurdistan Regional Government (KRG) in October last year.

Eager to rebuild its dilapidated infrastructure, Iraq has signed a series of contracts with foreign companies that target total oil production capacity of 12 million barrels per day (bpd) by 2017, up from about 3 million bpd.

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