A proposed hydrocarbon law regulating drilling and sales has been stalled since 2007, as Iraq’s political blocs wrestle over its terms. With improved security in Iraq since 2009, it has become increasingly possible for foreign oil companies to work here. The government in Baghdad has struck deals with international oil companies, including Exxon Mobil, that have been concentrated on oil fields in the country’s south, far from the Kurdish areas of the north.
Generally the Kurdish authorities have sold the oil and gas from their land through the government in Baghdad in exchange for an annual chunk of Iraq’s budget. But problems with the arrangement are common, and this week, the Kurdish government announced that it would suspend its exports because the government in Baghdad has not been fulfilling its obligations to pay oil companies working in Kurdish areas.
Meanwhile, there are several small companies, including the Norwegian firm DNO, that have ignored the shaky legal framework and signed deals directly with the Kurdistan regional government. The arrangements have thus far been tolerated by leaders in Baghdad. But Baghdad’s tolerance reached its limit in October when Exxon Mobil became the first company working in the south to also sign a deal with Kurdish authorities.
Adding to the sense of grievance in Baghdad, three of the six areas Exxon Mobil is set to develop are in disputed territory, which the administrations in Baghdad and the Kurdish capital of Erbil both claim.
The Exxon Mobil deal reportedly infuriated Iraqi Prime Minister Nouri al-Maliki and left his government with a dilemma: to allow the deal to go ahead and lend legitimacy to an independent Kurdish oil market, or to expel Exxon Mobil from the giant West Qurna oil field in the south and risk losing a flagship deal.
Exxon Mobil has declined to comment on the situation.
“Exxon Mobil thought that they would do it, that the Iraqi government would decide they were too big to take on, and that a new normal would be established,” said Ali al-Saffar, an energy expert. “But given just how explosive the territories they signed on are, it was always going to be very difficult.”
Late last year, the government informed Exxon Mobil that its deal with Kurdistan violated the terms of the company’s agreement to develop West Qurna, according to Deputy Prime Minister Hussain al-Shahristani. But the only formal action the government has taken thus far is to prohibit the firm from participating in next month’s bidding on gas fields.
Oil ministry officials in Baghdad say Exxon Mobil informed them last month that the company was suspending its operations in the Kurdish area. But Fouad Hussein, a top Kurdish official, insisted that the company is setting up an office in Erbil and planning its operations.
Relations between Erbil and Baghdad were strained even before the controversy over the Exxon Mobil deal flared anew. Kurdish President Massoud Barzani delivered a stinging speech on Thursday in Washington that ripped into Maliki as an autocrat.
“Iraq is facing a serious crisis,” he said. He insisted that oil deals struck in the autonomous Kurdish region were legal.
For his part, Maliki has been angered by the refusal of Kurdish authorities to hand over Tariq al-Hashimi, a vice president who fled to the Kurdish region after a warrant was issued for his arrest. Hashimi, who is wanted on terrorism charges that he denies, flew to Saudi Arabia on Wednesday.
The oil and gas fields in the Kurdish area represent a small fraction of Iraq’s vast hydrocarbon wealth. But some in Baghdad fear it could one day provide enough profit to encourage separatist forces in Kurdistan.
Shahristani, the deputy prime minister, said he is determined not to let that happen.
“If the oil is managed by different regions and will be a source of conflict and war among Iraqis, not only the country will be destroyed, none of them will really benefit from all these resources,” Shahristani said.