Britain asks Iraq to back off after threats to Exxon

Hayward enters row over oilfields after US giant's deal with Kurdish region causes controversy

The British government and former BP boss Tony Hayward yesterday waded into the legal battle over control of the oil in Kurdistan, calling on Baghdad to stop obstructing the development of the region's hydrocarbon reserves.

The calls came as Baghdad renewed its threat to throw Exxon Mobil out of the country after the US giant cut a deal to explore for oil and gas in the rocks of its arch resources rival, the semi-autonomous Kurdistan Region of Iraq.

The Iraq Government has long insisted that oil contracts signed with the Kurdistan Regional Government (KRG) are illegal. Furthermore, it has frequently threatened to bar any oil company operating in Kurdistan from working elsewhere in Iraq and to eject busines- ses already working in Iraq if they should sign a deal with the KRG.

On Friday Exxon Mobil became the first company operating in Iraq to challenge Baghdad, when its exploration deal in Kurdistan was first reported, prompting a series of threats by Iraqi politicians to evict it each day since.

The UK Government entered the quagmire yesterday when Michael Aron, British ambassador to Iraq, called on Iraq to "resolve its differences [with KRD] and reach an agreement over hydrocarbon laws and revenue sharing".

Speaking at the Kurdistan-Iraq Oil & Gas conference in Erbil, Mr Aron said: "The British Government would like a climate where British companies can work in and exploit the opportunities, with the Iraqi government and the KRG, across the whole of Iraq." Mr Hayward added: "The British embassy was imploring both sides to resolve this issue and I would support that request."

Mr Aron and Mr Hayward spoke after Mowaffaki al-Rubaie, former national security adviser to Iraq and member of the Iraqi parliament, warned that the Exxon Mobil deal "will not help the delicate negotiation of hydrocarbon law in Baghdad. We believe the Federal government will challenge Exxon Mobil."

Adding to the uncertainty, Adal Barwari, adviser to Iraq prime minister Nouri al-Maliki, said that his boss had agreed a "mutually acceptable" solution with Barham Salih, the Kurdistan Prime Minister, over oil and territory.

Baghdad has been keen to curb Kurdistan's oil development, partly because it fears that additional revenues will make it more powerful and increase its claim for greater autonomy.

If Exxon Mobil goes ahead with its contract in Kurdistan, while retaining operations in southern Iraq, other big players would rush into the region, gobbling up the 40 smaller companies that have piled in in recent years, analysts predict. Ashti Hawrami, Kurdistan's minister for natural resources, said: "There will be consolidation through mergers, I suspect. We can expect more movements in the near future."

Mr Hayward is among those who have moved into Kurdistan, acquiring Genel Enerji, a Turkish oil company focusing on the region, through his Vallares cash shell. It is his first venture since leaving BP after the Gulf of Mexico oil spill.

When asked if he had a target for Vallares' eventual oil production, he said: "One of the things I learnt from BP was don't have long-term targets".