Price for risk: Exxon prefers Erbil to Baghdad

Analysis Materials 24 May 2012 21:19 (UTC +04:00)

Azerbaijan, Baku, May 24 / Trend /

Azer Ahmedbeyli, Trend analytical centre expert

Tensions between the Iraqi government and Kurdish autonomy-related to issues of oil production and exports in its territory, is preserved.

Baghdad insists on the exclusive right to authorize production and export of the whole Iraqi oil, including that which is produced in the territory of autonomy. The Kurdish Regional Government (KRG), by contrast, believes that it is eligible itself. Recent events related to the negotiations between Turkey and KRG on the construction of the pipeline and the implementation of direct export supplies of oil, can escalate the situation even more.

"We will be able to directly export oil from Kurdish regions in August 2013," Natural Resources Minister Ashti Hawrami said. Baghdad immediately responded by warning the KRG and the Turkish side about the inadmissibility and illegitimacy of such actions, bypassing the central government.

However, not this is a precedent in ignoring the claims of Baghdad to approve all agreements on oil production and export.

Fourth license round for the development of hydrocarbon resources of Iraq will be held in Baghdad in less than a week. Iraqi Oil Ministry spokesman Asym Jihad said 12 blocks, both oil and gas will be submitted in the frame of the tender. The tender will be attended by forty-seven companies from different countries.

The American company Exxon has been excluded from participation in it due to the signing of an agreement with Kurdish autonomy to develop six oil blocks in its territory without the sanction of Baghdad in October last year. Baghdad demanded cancellation of the deal and threatened to exclude the company from participation in the tender.

The company asked for time to think. Then there were conflicting reports in the media - either about freezing by company of activities on the territory of autonomy, then the commitment to signed agreements. As a result, the last press release from the Iraqi Oil Ministry on April 19 didn't include Exxon. It preferred to keep its presence in Iraqi Kurdistan.

Why did the U.S. oil giant voluntarily deprive itself of potential units in the contract to develop fields in southern Iraq, which contain much more oil reserves than available in the territory of Iraqi Kurdistan, knowing also that thereby it spoils the relationship with central government? Is everything explained only by the fact that it is easier to do business, to agree upon the terms of contracts and to share profits on better terms with the Kurds than with Baghdad? The matter rests in the big investments and this is amid the confrontation in dividing the power between Baghdad and Erbil in terms of oil production and exports.

Western companies usually prefer to take a wait-and-see attitude in these disputable cases, without risking their capital, or in general withdraw if the problem settlement takes an indefinitely long period of time or turns into in the conflict.

Regarding Exxon, it is supposed, there is something that justifies the risks.

Iraqi and Syrian Kurds were first after the fall of Saddam Hussein's regime and second in the wake of the "Arab Spring" and the events in Syria who publicly declared that all their efforts will be made to establish an independent Kurdish state. This process can take years, or it can not take place in the foreseeable future, or under the influence of a controlled chain of events. It can be greatly accelerated. But in any case the question arises, who will be the first and principal partner of the young independent state, having great reserves of hydrocarbons, or, if we speak in a roundabout way, who will oversee Kurdistan oil.

It is not a secret that the control over energy resources, especially if they are in a region like the Middle East, is one of the priorities of the U.S policy. U.S. big companies represented and represent the U.S. national interests in various countries where they deploy their activity, especially in the oil producing countries. Perhaps, this is the price which Exxon pays for Washington to be already on the scene when the day of Kurdistan's independence occurs.

According to BP, Iraq's proven oil reserves as of early 2011 amounted to 115 billion barrels, which leads the country in the third place in the Middle East after Saudi Arabia and Iran. There are 40 percent of Iraqi oil, or about 45 billion barrels in Iraqi Kurdistan.