Exxon oil deal raises tensions

15 November 2011

Kurdish oil contracts mark an important shift in the relationship between Irbil and Baghdad

It will be sometime before anyone knows just what prompted executives at ExxonMobil to pull off their daring switch in Iraq. Despite warnings from the Oil Ministry in Baghdad, the US oil giant has gambled its future in the country by signing six exploration blocks with the Kurdistan Regional Government (KRG).

Signed in mid-October, the agreement was surrounded by silence until Ashti Hawrami, the KRG’s natural resources minister announced it at a conference in Irbil, scoring a public relations masterstroke in the process.

For the KRG, the deal is a game changer in terms of its development as an oil producer. Once considered home to wild-card oil explorers and small firms, the region now hosts the world’s largest shareholder-owned oil firm.

The ExxonMobil contract, as with the 40 or so others signed by the KRG, is not recognised by the central government in Baghdad. The difference this time is ExxonMobil is the developer of one of Iraq’s biggest oil fields at West Qurna, and is leading the development of crucial pieces of oil infrastructure.

The deals also bring into question the federal government’s relationship with all of its provinces

As expected, the reaction from the Oil Ministry to the deal was strong and it seems they may choose to make an example of ExxonMobil. Blacklisting the firm will not be easy. Neither will be accepting the deal. Talk of independence for the Kurdish region may be premature, but there will be many in Baghdad who will see this as the first step down that road. For now, the central government controls Iraq exports, which will determine the viability of any oil projects in the KRG.

The question now is where does this leave ExxonMobil’s projects in Iraq, and in broader terms, what happens to Irbil-Baghdad relations. The deals also bring into question the federal government’s relationship with all of its provinces, including the oil-rich south. Iraq has not looked as fragmented as this for some time.

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