Exxon's deal with the Kurds inflames Baghdad

The oil giant has defied Iraq's government by signing up to drill in disputed territory

Baghdad

The great Iraqi oil rush has started to exacerbate dangerous communal tensions after a major oil company ignored the wishes of the central government in Baghdad and decided to do business with its main regional rival.

Click here to view graphic 'Fuelling the tension: where problems lie'

The bombshell exploded last month when Exxon Mobil, the world's largest oil company, defied the instructions of the Baghdad government and signed a deal with the Iraqi Kurds to search for oil in the northern area of Iraq they control. To make matters worse, three of the areas Exxon has signed up to explore are on territory the two authorities dispute. The government must now decide if it will retaliate by kicking Exxon out of a giant oilfield it is developing in the south of Iraq.

Political leaders in Baghdad say the company is putting the unity of their country at risk. Hussain Shahristani, the Deputy Prime Minister in charge of energy matters, told The Independent in an interview in Baghdad that any oil or gas field development contract in Iraq "needs the approval of the federal government, and any contract that has not been presented to the federal government has no standing and the companies are not advised to work on Iraqi territory in breach of Iraqi laws".

Baghdad has had oil disputes before with the Kurdistan Regional Government (KRG), but the present row is far more serious because it is the first time "Big Oil" has moved into Kurdistan, showing that at least one of the major oil companies is prepared to disregard threats from the government of Nouri al-Maliki. Previously, only small independent foreign oil companies, without other interests to protect in the rest of the country, have risked signing contracts with the Kurds.

"Exxon Mobil was aware of the position of the Iraqi government," says Mr Shahristani, a former nuclear scientist who was tortured and imprisoned by Saddam Hussein. "We hear from the American government that they've advised all American companies, including Exxon Mobil, that contracts should not be signed without the approval of the federal government."

Whatever the prospects of finding oil in the north of Iraq, observers are surprised that Exxon is prepared to hang its future in Iraq on the outcome of the power struggle between Iraqi Kurdistan and the central government. Control of the right to explore for oil and exploit it is crucial to the authorities on both sides since they have virtually no other source of revenue.

The Kurds have won a degree of autonomy close to independence since the fall of Saddam, and the ability to sign oil contracts without reference to Baghdad will be another step towards practical independence and the break-up of Iraq. A parallel would be if the Scottish government were to sign exploration contracts in the North Sea without consulting London.

What makes the Exxon-KRG deal particularly inflammatory, says Mr Shahristani, is that three of the six blocs where Exxon is planning to drill are understood to be "across the blue line – that is outside the border of the KRG". This means they are in the large areas in northern Iraq disputed between Arabs and Kurds since 2003, but where the Kurds have military control.

The government must now decide if it will make good on its threats and replace Exxon at a mammoth oil field called West Qurna 1 at the other end of the country, north of Basra. Iraqi oil officials hint that Royal Dutch Shell might replace the American company.

Both sides have much at stake. The Iraqi government is totally reliant on its oil revenues to pay its soldiers, police force and civilian officials. It needs vast sums to rebuild the country after 30 years of war, civil war and sanctions. In 2009, it began to expand its oil industry by signing contracts with firms such as BP, Royal Dutch Shell and Exxon to boost production in under-exploited and poorly maintained fields.

These companies thereby gained access to some of the largest fields in the world, each with reserves of more than five billion barrels. Vast sums are being invested, mostly around Basra in the south of Iraq. Oil output, now at 2.9 million barrels a day, is due to rise to a production capacity of 12 million b/d by 2017, potentially putting Iraq on a par with Saudi Arabia as an oil exporter.

Mr Shahristani is pleased with progress so far, saying that what "we are doing in Basra is at least five times larger than the largest oil projects in the history of the oil industry so far."

Sitting in his vast office in a cavernous palace originally designed for one of Saddam's senior lieutenants, he holds up a chart showing the surging production from the Rumaila oilfield of 1.4 million b/d, more than Britain's entire current output of crude from the North Sea.

Iraqis are split on whether Exxon is being cunning or naive. One explanation is that the oil company feels so powerful, or so essential to Iraqi oil development, that it can disregard the Iraqi government. An alternative argument is that Exxon is dissatisfied with the West Qurna 1 deal and so does not mind walking away from it and looking for oil elsewhere. A third is that the company got suckered by the Kurds.

Iraqi Arabs know that the Iraqi Kurds want to control as much of Iraq's oil reserves as possible to buttress their independence. Less easy to understand is why Exxon should willingly make its activities a central issue in the Arab-Kurdish confrontation which has for so long destabilised Iraq.

Flashpoint: Iraqi military bases

The transfer of Iraq's military bases to local control is another flashpoint between the Kurdistan Regional Government and Baghdad, and some fear the dispute may boil over when US forces pull out at the end of the year.

Last month saw a tense standoff between the Iraqi army and local Kurdish forces at a US airbase in the northern city of Kirkuk, an oil-rich area long a point of dispute. The Kurdish police force reportedly blocked an army team from entering the base for an official handover from the US, unhappy that it was being transferred to Baghdad.

In an effort to calm the drama, the US ambassador, James Jeffrey, met Kirkuk's Governor, Najmaldin Karim, and Iraq's Prime Minister, Nouri al-Maliki, in the capital.

"We did not want a situation where we ended up shooting at each other," said Mr Karim.

The situation was defused when the central government made assurances that the base would be used for civilian aircraft only, a key demand of the Kurds.

However, once the base is handed over to Iraqi control, Washington will have little control over whether Baghdad sticks by its verbal agreement. Indeed, Ali Ghaidan, the commander of Iraq's ground forces who led the army team that eventually entered the base, has since publicly ruled out the possibility of the base being turned into a civilian airport – saying it is of too much strategic importance to Iraqi forces.

Reports of Kurdish security forces, known as peshmerga, bolstering their presence in Kirkuk have raised questions over how long the lid can be kept on this simmering conflict.

News
peopleFrankie Boyle responds to referendum result in characteristically offensive style
Sport
Lewis Hamilton will start the Singapore Grand Prix from pole, with Nico Rosberg second and Daniel Ricciardo third
F1... for floodlit Singapore Grand Prix
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvHe is only remaining member of original cast
Arts and Entertainment
tvHighs and lows of the cast's careers since 2004
PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
Sport
Gabriel Agbonlahor, Alexis Sanchez, Alan Pardew and Graziano Pelle
footballAfter QPR draw, follow Villa vs Arsenal, Newcastle vs Hull and Swansea vs Southampton
News
news
New Articles
i100
Life and Style
Couples have been having sex less in 2014, according to a new survey
life
Arts and Entertainment
musicBiographer Hunter Davies has collected nearly a hundred original manuscripts
New Articles
i100... with this review
Voices
Holly's review of Peterborough's Pizza Express quickly went viral on social media
New Articles
i100
Arts and Entertainment
musicHow female vocalists are now writing their own hits
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Cover Supervisor

£75 - £90 per day + negotiable: Randstad Education Group: Are you a cover supe...

Marketing Manager - Leicestershire - £35,000

£30000 - £35000 per annum: Ashdown Group: Marketing Manager (CIM, B2B, MS Offi...

Marketing Executive (B2B and B2C) - Rugby, Warwickshire

£22000 - £25000 per annum: Ashdown Group: A highly successful organisation wit...

SEN Coordinator + Teacher (SENCO)

£1 per day: Randstad Education Leeds: Job Purpose To work closely with the he...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam