Exxon Mobil was told by Baghdad that a recent deal with the semi-autonomous Kurdistan Regional Government is in violation of national law.
"Exxon Mobil has written to the Iraqi government about this and they have received the response from the ministry of oil and the prime minister's office that contracts will not be recognized unless they are approved by the Iraqi government," Deputy Prime Minister Hussain al-Shahristani was quoted by Bloomberg News as saying. "In this particular case, there is a breach of laws and the Iraqi government is considering its actions."
Victoria Nuland, a spokeswoman for the U.S. State Department, said Iraq needed to craft legislation outlining rules in the country's energy sector to encourage investments.
"That said, when Exxon has sought our advice about this, we asked them to wait them to wait for national legislation," she said. "We told them we thought that was the best course of action."
Nuland added there were "significant political and legal risks" to investing in the Iraqi energy sector before the government passes laws on oil.
Exxon didn't make a public comment available.