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Exxon's Kurdish deal has political fallout
by Staff Writers
Baghdad (UPI) Nov 30, 2011

Exxon Mobil's controversial October exploration deal with Iraq's semi-autonomous Kurdish enclave in defiance of the Baghdad government may speed up major changes in the country's energy industry.

But it also has profound political overtones that could undermine the central government by encouraging other regions to demand greater autonomy as U.S. forces pull out.

Exxon Mobil's decision to sign the agreement covering six exploration blocks with the Kurdish Regional Government challenged Baghdad because many Kurds saw the deal with the world's largest oil company as a step toward the creation of a long-sought independent Kurdish state.

Amid the U.S. withdrawal, "momentum in Iraq is now shifting in favor of greater federalism and further autonomous regions that would operate largely independent of Baghdad in a similar way to the KRG," the Middle East Economic Digest observed.

These rumblings of discontent embrace both majority Shiite and minority Sunni regions.

The mainly Sunni provinces of Salahadin and Anbar in the north have both demanded greater autonomy along the lines of the KRG. So have the Shiite-dominated Basra and Wasit provinces in the south, where some two-third of Iraq's oil lies.

The coalition government of Prime Minister Nouri al-Maliki maintains that the KRG, or any other regional body in Iraq, has no authority to sign such deals independently under the current laws governing energy resources.

Kurdistan, which spans three northern provinces bordering Iran and Turkey, contains an estimated 45 billion barrels of oil -- about the same as Libya -- and large amounts of natural gas.

The oil reserves comprise about 40 percent of Iraq's known reserves of 143.1 billion barrels.

It's widely believed that another 100 billion barrels could lie in fields yet to be explored.

That means international oil companies with a foot in the door have the prospect of gaining access to reserves that will ensure that Iraq's a key producer well into the 21st century at a time when major fields in Saudi Arabia and elsewhere are starting to run down.

"If the KRG is able to attract another international major it could intensify the pressure on the federal government to allow the contracts," observed Javier Blas, energy correspondent of the Financial Times.

Ashti Hawrami, the KRG's natural resources minister, disclosed Nov. 13 that at least two other majors were conducting talks with the KRG in Irbil, capital of the Kurdish enclave that became semi-autonomous after the 1991 Gulf War under Allied protection.

"We have space for one to three international oil companies to come to us," he declared.

He didn't name the two majors but industry sources believe they're Chevron of the United States and Eni of Italy.

Royal Dutch Shell had also been talking to the KRG, but pulled out to protect lucrative investments in southern Iraq, where two-thirds of the country's oil reserves are located.

Shell signed a ground-breaking $17 billion gas contract in the south with Baghdad Nov. 27. It will have a 44 percent stake in the joint venture with Mitsubishi of Japan, with the government holding 51 percent.

The Oil Ministry has warned that Exxon Mobil could be stripped of its 2009 20-year production contract to develop the huge West Qurna Phase 1 field in southern Iraq. It contains 8.7 billion barrels and is one of the most prized fields in the country.

Exxon Mobil has a 60 percent stake in the project, a key component in the government's plan to quadruple oil production to as much 12 million barrels per day by 2017.

Exxon could also be disqualified from an auction for important oil and gas exploration blocks in March. It's one of more than 40 foreign companies prequalified to bid.

But removing the U.S. giant from West Qurnah could prove to be an onerous undertaking, insiders say. They argue that the Oil Ministry would have to prove to international arbitration that Exxon had broken Iraqi law, which it hasn't because an Oil Law proposed in 2007 has been hung up ever since in Iraq's fractious Parliament.

There have been reports the ministry and the KRG, the main protagonists, have reached a compromise that would give the Kurds greater control of their oil.

But with Maliki making political deals with anyone he can to keep his shaky coalition intact, no one's holding their breath.

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