Exxon's Greed Could Stoke Civil War Tensions in Iraq
November 29, 2011
Exxon Mobil's decision to sign a deal for stakes in six oil fields in Kurdistan is threatening to exacerbate tensions between Baghdad and the Kurdistan Regional Government and imperil the company's position in the country. Baghdad has threatened to retaliate by imposing sanctions on the US oil giant.
Exxon Mobil's Deal May Excacerbate
Tensions between Baghdad and Kurdistan
LONDON (November 24, 2011) -- Exxon Mobil's decision to sign a deal for stakes in six oil fields in Kurdistan is threatening to exacerbate tensions between Baghdad and the Kurdistan Regional Government and imperil the company's position in the country. Exxon is the first major IOC to sign a production-sharing contract (PSC) with the KRG, said Barclays Capital in a briefing.
The Kurdistan government has signed around 37 PSC agreements with smaller and medium sized international oil companies but the majors up till now have taken a pass on the region, despite the fact that the contract terms are more favorable than those offered by Baghdad for the southern fields and allow the companies to book reserves.
Baghdad has repeatedly vowed to blacklist any company that signed an agreement with the KRG from participating in licensing rounds for fields in Southern Iraq. While some commentators have speculated that the move by Exxon will spur other majors to venture into Kurdistan, Barclays believes that the decision is fraught with political risks.
Baghdad has publicly condemned the company's actions and on Tuesday the Deputy Prime Minister for Energy Hussain al-Shahristani warned that the Iraqi government "is considering sanctions" against Exxon.
The company is the lead operator in the West Quarna 1 oil field in Southern Iraq, which is poised to produce 0.4 mb/d by the year and is expected to produce 2.25 mb/d by 2015. The Iraqi government has delivered on its blacklist threats in the past.
This summer, Hess was disqualified from participating in licensing rounds for southern fields after it signed exploration agreements with the KRG. The Chinese oil giant Sinopec also found itself at odds with Baghdad following its purchase of Addax Petroleum in 2009.
After Sinopec refused to surrender Addax's holdings in Kurdistan, Baghdad barred the company from taking part in the second bid round for southern oil blocs and removed it from the ENI led consortium for the Zubair field.
As Barclays has previously noted, in many ways the Kurdistan contract dispute is part of a much broader debate about the nature of the Iraqi state. Kurdistan has been governed as a semiautonomous region since 1991, and its leaders strongly support a loose federal system of government.
The KRG insists that it has the legal authority to negotiate its own oil concessions and is seeking a larger share of the oil revenue that is divvied out by the central government.
The Maliki government, on the other hand, supports a strong central state and maintains that the KRG has no authority to sign extraction agreements. His government also insists that the only agreements that can be signed with the IOCs are technical service agreements, which pay the companies a fixed amount for increasing production but do not confer any ownership rights for the oil.
Many southern politicians are ardent nationalists who are opposed to foreign companies owning Iraq's energy assets. It is worth noting that the US government has previously tried to discourage American companies from signing extraction agreements with the KRG, fearing that it would inflame relations between Baghdad and Kurdish officials. On Tuesday, the State Department confirmed that it had warned Exxon about the risks of signing contracts without "nationwide approval."
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