Relations between Iraq’s central oil ministry and the government of the semi-autonomous Kurdish region have soured further over disputes linked to the presence of ExxonMobil on both sides of the ‘green line’ dividing the two, and the Kurdish Regional Government’s (KRG) contribution to Iraq’s oil exports.
Iraq’s oil minister, Abdul Kareem al-Luaibi, claimed on Friday that he had received a letter from ExxonMobil on 5 March stating that the US supermajor has ‘frozen’ the deal it struck with the KRG in October last year.
The US supermajor is currently operating the 370,000 bpd West Qurna 2 field in south Iraq, and is a primary partner in oilfield infrastructure projects, such as a water reinjection facility for the south’s oil fields.
“We have received a letter from Exxon in which it stated it freezes its oil contract with Kurdistan,” Al-Luaibi said, according to a Dow Jones report.
News of the freeze – the minimum demanded by Baghdad to stave off formal censure – was quickly disputed by Kurdish officials.
“We’ve never heard anything like this from Exxon Mobil,” Fuad Hussein, senior aide to Kurdish President Masoud Barzani, told Reuters. “We have continuous meetings with Exxon Mobil’s senior executives and I think the company is continuing its work.”
“A senior KRG source told me: “It is business as usual,” Michael Howard, a British diplomat instrumental in shaping Kurdish oil policy, tweeted on Saturday. “No interruptions, no freezes, despite claims to the contrary.””
Today the situation took a further twist, as the Kurdish AK News service reported a claim by Farhad al-Atrushi of the Kurdish Blocs Coalition that Exxon also sent a letter to the KRG on 8 March, confirming its commitment to all its contracts in Iraq.
Exxon declined to comment.
By entering Iraqi Kurdistan Exxon has thumbed its nose at Baghdad’s long-held blacklist policy against the Kurdish oil industry, and effectively wedded the company to a political position of Kurdish maximalism.
The current controversy adds to tensions raised over the central government’s ambition to start development of the long-neglected Kirkuk oil field, which sits in territory disputed within Iraq between various groups. The oil ministry is reported to be in talks with BP and Schlumberger as Prime Minister Nouri Al-Maliki, fresh from victory in a round of power politics with the Iraqiyyah party, looks to increase pressure on his Kurdish coalition partners.
The nature of the disagreement is exacerbated by wooly language and a lack of transparency on all sides.
The KRG has so far failed to disclose the deals signed with Exxon, despite an avowal to conduct its oil deals transparently and having posted all its other production sharing contracts online. Baghdad has declined to disclose the Exxon letter, which Iraq Oil Report states was delivered by Exxon to the ministry by hand.
ExxonMobil waited months to confirm that it had entered Iraqi Kurdistan, and while stating in a regulatory report in late February that the contracts were only “negotiated,” the firm later described them as “signed” in a subsequent analyst conference. Company officers have said that Exxon is “committed to working” in both areas of the country, though this allows room for delay in when in-field activity in Kurdistan might begin.
There is also confusion regarding the timing of the letter. Reports emerged after the ostensible delivery date of the Exxon letter that Baghdad had given Exxon “a few more days” to respond to demands that it explain its Kurdish deals. The most likely implication is that either Exxon’s reply was insufficient, or that the oil ministry is hoping to play deaf until it hears the answer it wants. Exxon seems happy to do just enough to maintain its interests on either side of the green line.
Meanwhile, the KRG has sharply reduced the oil its sends to the south for export, claiming Baghdad owes it $1 billion in oil revenues for 2011 alone, and that the oil ministry is failing to manage Kurdish oil properly.
In a sharply-worded statement, the KRG confirmed that it has cut oil traffic to the south from 175,000 barrels per day to “90-100,000” barrels.
Last month Al-Luaibi said that the Kurdish region is only sending 65,000 bpd south instead of the pledged 175,000bpd, in breach of pledges made under the 2012 budget.
It also says Baghdad has failed to account for a 25,000 bpd discrepancy in what the KRG says it puts in the pipeline and what Baghdad exports, saying “this discrepancy should be investigated immediately in case somebody is creaming off the difference between the oil received and the oil sold.”
While the KRG government says it is able to pump up to 250,000 bpd south, it is unlikely that Baghdad will jump at the opportunity. The price of taking this further crude would be to give de facto legitimacy to the KRG’s oil industry.
Moreover, as production ramps up from southern fields and Fao’s offshore oil terminals come on line, Baghdad may be in little need of Kurdish oil for the time being, notwithstanding budgetary commitments.
For its part, the KRG been diverting more of its supply into its domestic market, which currently stands at 100,000 bpd, with half coming from the south and half produced locally, according to figures from a KRG official. With a limited domestic market and no other lawful export route, the current impasse will remain tolerable to oil companies in the south longer than it will to their counterparts in Iraqi Kurdistan.
The latest developments are likely to encourage both sides retaining their parallel oil industries for the time being, dramatically reducing the likelihood of progress in respect of the country’s oil & gas law in the near future.
