The Iraqi government has issued an admonishment to the largest American oil company over the company’s reported efforts to expand its oil holdings into the Kurdish region in the country’s north.
The Financial Times reported that Irving, Texas based Exxon-Mobil, the United States’ largest petroleum company, has become the first major international oil operator to sign a contract in the Kurdistan region. The Exxon deal could further Iraqi Kurdistan's ambitious development plans, and inserts the company into an underlying controversy that has persisted in Iraq since the American invasion. The deal could jeopardize Exxon-Mobil investments in Iraq.
Oil has long been the heart of Iraq’s wealth, and the aforementioned American invasion propelled control of the rich reserves into question, heightening decades-long hostility between the Kurds and other Iraqis. Iraq's central government has said Baghdad would consider a deal between Exxon and the KRG illegal and a violation of the company's contract to develop Iraq's 8.7-billion-barrel West Qurna Phase One oilfield.
Under a 2009 contract, Exxon is leading a consortium developing one of Iraq’s largest oil fields, outside Basra near the Persian Gulf. Exxon and its partners agreed to invest $50 billion over seven years to increase output by about two million barrels of oil per day there, at West Qurna Phase 1, bringing more new oil to market than the United States currently produces in the Gulf of Mexico.
An Iraqi official said the central government had cautioned Exxon against pursuing oil deals in Kurdistan, which the government says will remain illegal until long-awaited rules can be worked out to split revenues among Iraq’s fractious regions.
"The Iraqi government will deal with any company that violates the law the same way it dealt with similar companies before,” - Hussein al-Shahristani, Iraqi Oil Minister
It was unclear whether the statement implied any threat to revoke Exxon’s existing contracts, which would be significant. But Michael Klare, a professor at Hampshire College and an authority on the Iraqi oil industry, speculated that Exxon may be hedging that Iraq would not make good on threats of punishment, recognizing that the company’s investment elsewhere in the country was crucial to its economic revival.
“Both Exxon and the Iraqis understand that Iraq has no hope of reaching its lofty goals of higher oil output without Exxon’s involvement. Threats to punish the company for investing in the Kurdish area are hollow.” – Michael Klare
Several smaller American oil companies have previously signed contracts with the Kurdistan Regional Government and the Exxon deal has lead to other American companies signing deals. The Kurds offer more lucrative production-sharing agreements, allowing those companies to earn a larger share of oil revenue which helps boost stock prices. The larger companies previously declined deals with Kurdistan in order to ensure they’d retain deals for fields in Iraq proper. Iraq’s Constitution allows regions to strike their own oil deals, but the government has excluded oil companies active in Kurdistan from new auctions elsewhere in Iraq.
The Bush administration and the Iraqi Provisional Government passed the controversial oil law as a crucial benchmark to bring long-term peace to Iraq. With the American withdrawal imminent, concerns are mounting that ethnic tensions could again threaten stability with oil revenues and the division of profits, potentially seen as major contributors to unrest.
The State Department has sought to quell antagonism between Kurdistan and the Iraqi Central Government, and American troops have died in attempts to keep the peace along that internal border.