By Shwan Zulal
It has been almost a year since super-major oil company
ExxonMobil ventured into Iraq’s Kurdistan Region. Despite Baghdad's harsh words
against the company, it has suffered little punishment other than exclusion
from the 4th bid round, in which it showed little interest anyway.
Since then more large oil companies have joined ExxonMobil
in the autonomous Kurdistan region, including Total, Chevron and Gazprom. While
harsh language was used against ExxonMobil, Chevron and Total, Russia’s Gazprom
has not been on the receiving end of threats from Baghdad. Although sending the message it is plotting
revenge, Baghdad has done little since its initial warnings.
Baghdad and Kurdish regional government (KRG) have been at
loggerhead over oil policy and the rights to grant exploration licences. The KRG believes that the constitution allows it
to control and manage its oil and gas industry but the Central Iraqi government
disagrees and believes only the central government has the authority to do so.
In the process the dispute has led to oil companies operation in Kurdistan region
been blacklisted by Baghdad and crude export from Kurdistan Region halted.
A deal has emerged last week, between the two sides to
resume production from Kurdistan region and Baghdad pay the cost for the oil companies
in Kurdistan. However the deal would need to be ratified by both Kurdish and central
government council of ministers. Moreover; a similar deal was brokered by Kurdistan
region previous PM, Braham Salih, in 2011 but Baghdad did not make the payments
and production was halted once again until last month, resuming as a gesture of
good will by the KRG, to break the deadlock.
The deal will benefit both sides enabling Kurdistan region accelerate
expanding its oil sector and Baghdad increase production to historical highs.
Kurdistan Region has no independent pipeline and the only route is through
Baghdad owned Kirkuk-Ceyhan pipeline. Therefore, the KRG feels that it has been
left with no option but to truck oil to its neighbours and recently to Turkey,
which has agitated Baghdad.
ExxonMobil’s logistical preparation on the ground in
Kurdistan is well underway. According to its contract, it is likely to have to
start exploration which starts with the seismic
survey soon. The standard Production Sharing Contract, stipulates that the
IOC's is expected to start operation within the first sub period, which is three
years. During which the first exploration well must be drilled with all the
preparation that entails. Meanwhile, knowing a year has passed and not much
work has been carried out and this deadline is nearing, Baghdad has upped the
rhetoric and indirectly threatensed ExxonMobil with exclusion from its contract
to develop the giant West Qurna-1 field in southern Iraq.
Most of the warnings have been coming from people close to the
Iraqi oil ministry and the real power in Baghdad’s oil sector, the Deputy PM
for energy, Dr Hussain Shahristani. The strong
language included " ...If they dig, they cannot take Iraqi oil",
reported the specialist media group Iraq Oil Report , meaning if ExxonMobil start
operation under their obligations, Exxon will risk its West Qurna-1 contract
and at the same time they will not be able to sell their Kurdish oil through
Iraqi pipelines.
Furthermore, the website quoted Baghdad officials saying
that the way to retaliate and can take more subtle forms: "Do not give
them permits to come, do not allow their people to work ... and they will find
that they are not welcome here". These types of comments are worrying,
though, more for Iraq than for ExxonMobil. If ExxonMobil’s operations in the
south are obstructed, the main loser will be Iraq as failure to increase
production will cost Exxon less than $2 per barrel while Iraq and its people
will lose over $100 per barrel. Needles to say that limiting ExxonMobil's
operation may hurt the company somewhat financially if they lose what they have
invested so far, but it will have far more reaching implication. Shell, which
has been obedient to Baghdad and is ExxonMobil's partner in West Qurna-1 field,
will also be affected if development hindered and lawsuits commences.
When ExxonMobil signed its deal with the Kurdistan region,
Baghdad was completely taken by surprise. So far, Dr Shahristani has refused to
accept that Dr Ashti Hawrami, KRG Oil minister, has outmanoeuvred him. Should Baghdad cancel the West Qurna-1 contract,
ExxonMobil has made it clear that it will take legal action. Last week, information about the meeting ExxonMobil
had with Baghdad officials has come to light; Dr Shahristani
was reported to have been very frustrated and "hardly able to control his
emotions" during the meeting.
Baghdad's options are limited when it comes to punishing
ExxonMobil. Its strong language has been heard before, and it would need to
demonstrate why, this time, it is capable of executing its warnings. As a sovereign
government, Iraq can do as it wishes dealing with the IOCs. But if it does
deliver on threats including cancelling contracts and making life difficult for
ExxonMobil, it too will suffer.
