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Baghdad, Kurds square off in oil dispute

March 16, 2012 at 1:40 PM   |   Comments

IRBIL, Iraq, March 16 (UPI) -- The simmering dispute between Iraq's central government and the semi-autonomous Kurdish region over oil has ramped up a couple of notches amid a swelling political crisis in which some provinces are demanding self-rule.

The Kurdish Regional Government in Irbil, capital of the Kurdish enclave in northern Iraq, claims the central government owes it $1 billion in oil revenues.

Meantime, Exxon Mobil, which is scrapping with the Iraqi Oil Ministry over a controversial October 2011 deal with the KRG, indicated it plans to go ahead and drill in Kurdistan despite an exploration ban imposed by Baghdad.

The federal government insists it is the only authority that can issue drilling licenses and deems the Exxon Mobil deal illegal but an oil law remains stuck in Iraq's fractious Parliament.

Exxon Mobil has said nothing about its breakaway Kurdish deal, the first such challenge to the central government by an oil major, since it was signed Oct. 18.

But on Feb. 24, its annual report disclosed its plans to conduct exploration in six blocks in Kurdistan, some of which overlap with contested zones claimed by Irbil and Baghdad.

"The exploration term is for five years with the possibility of two-year extensions," the report said. "The production period is 20 years with the right to extend for five years."

On Thursday, the KRG claimed Baghdad had "failed to meet their obligations" by not handing over promised oil income totaling more than $1 billion "for revenues accrued in 2011. Furthermore, not a single dollar has been received for exports in 2012."

The KRG said Baghdad's Oil Ministry listed Kurdish oil production at 65,000 barrels per day instead of the 90,000-100,000 being exported.

This, it said, required investigation "in case somebody is creaming off the difference between the oil received and the oil sold."

The KRG claims Kurdistan contains 45 billion barrels of oil.

Iraq has overall proven reserves of 143.1 billion barrels and, thanks to development of major fields by foreign companies like Exxon Mobil over the last two years, is producing more than 3 million bpd for the first time since 1979.

Exxon Mobil's deal with the Kurds was widely seen as a direct challenge to Baghdad's claim to be the sole authority on oil contracts.

But more importantly, by dealing with the KRG the oil giant tipped the balance in the long-running power struggle between Baghdad and the Kurds.

Analysts say that defiance of central government indirectly sharpened strains on the unity of the country by encouraging other regions to stand up to the federal government.

Since Exxon Mobil's landmark deal with the Kurds, U.S. forces have withdrawn from Iraq, leaving Prime Minister Nouri al-Maliki's Shiite-dominated government to fend for itself.

A crackdown by Maliki on his political rivals, launched as the last U.S. troops left in mid-December, triggered a new spasm of violence and unrest in which several provinces dominated by minority Sunnis have demanded autonomy, threatening fragmentation of the state.

In this inflammatory climate, the oil dispute between the Kurds and Baghdad has taken on a new resonance, fueled by Exxon and the prospect that other majors may follow it into Kurdistan against Baghdad's wishes.

This has also raised questions about whether the U.S. government was aware of Exxon Mobil's plans.

"It would be surprising if this was done without the tacit agreement of the U.S. government," the Middle East Economic Digest observed recently.

With U.S. troops gone, "the United States may reluctantly conclude it has little option but to push Baghdad to accept the new KRG reality."

The Kurds, whose ultimate -- though unspoken -- ambition is an independent homeland, have clashed with Baghdad over oil since the 2003 U.S. invasion.

But this scrap is infinitely more serious because for the first time Big Oil has joined forces with the minority Kurds.

The KRG has signed exploration contracts with 40 foreign oil companies in recent years but these have mainly been small wildcatting outfits. Baghdad has blacklisted most of them.

Exxon Mobil is something else. Now Total of France, one of the global majors, is showing interest in deals with Irbil as well, much to Baghdad's chagrin.

Hussein al-Shahristani, the former oil minister who is now deputy prime minister for energy, warned Total it would bear the "full consequences" if it cut a deal with the Kurds.

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