The escalating dispute between the Central Government of Iraq and the Kurds over oil and land went up a notch after the Kurdistan Regional Government gave warning to the oil giant BP for not helping Baghdad in upgrading an oil field in the disputed territory.
BP, which appears to be committed to Iraq, secured a chief production-sharing deal from Baghdad in 2009 for developing the Rumaila superfield in the south.
Now it is reported to be close to a deal with Baghdad for upgrading the declining Kirkuk oil fields in the north. These straddle the border between Kurdistan and territory controlled by Baghdad.
The semi-autonomous Kurds demand that the Kirkuk region is historically a part of their turf and wants to get their hands on its oil reserves, which constitute about one-third of Iraq’s proven reserves of 143.1 billion barrels.
So the last thing they want is for BP – or anyone else – to arrest the fields’ decline to strengthen the claim of Iraq.
The KRG President Massoud Barzani said that the citizens of Iraq are simply sick of Baghdad’s language of threat and intimidation, which in the cynical pursuit of narrow political agendas only serves to create division and strife.
The confrontation is fast becoming a main threat to the stability of Iraq and unity and has hamstrung Prime Minister Nouri al-Maliki’s drive to entrench his authority since U.S. forces withdrew in the year 2011.
The dispute went toxic in the month of October of 2011 when the KRG defied the Central Government by signing a six-block exploration contract with Exxon Mobil, which the largest company in the world.
Baghdad branded that illegal. The Kurds, who have control over the three northeastern provinces, responded by signing contracts with Chevron Corp. of the United States, Total of France and Gazprom of Russia.
Like Exxon, they were fed up with Baghdad's bureaucratic morass, corruption, supply delays and stingy production-sharing contracts and favored the KRG's more lucrative deals and better operating conditions.
With a long-delayed Oil Law snarled in Iraq's fractious Parliament since 2007, the Kurds' action undermined Baghdad's claim to be the sole authority in the energy sector, and heightened the prospect of the independence-minded Kurds breaking away.
This perilous crisis is certain to deepen even more following the KRG's disclosure Sunday it's negotiating with "two or three other significant companies" it didn't identify.
A military confrontation is a probability. For weeks, heavily armed forces from both of the sides have been locked in an uneasy standoff along Kurdistan’s southern boundary, centered on the bitterly contested oil-rich region of Kirkuk.
This political fault line could be widened if Exxon Mobil goes ahead with exploratory drilling, expected this summer, in three of its blocks that lie in disputed territory.
The Shiite-dominated coalition of Maliki, is under growing pressure from minority Sunnis opposed to his increasingly dictatorial style, as well as the Kurds and attacks on a daily basis by a resurgent al-Qaida in which hundreds of Shiites have been killed in recent months,
He cannot afford to let the KRG confront him. If the Kurds, who sit on 45 billion barrels of oil, decide to go it alone, that would encourage other grumbling regions, which also includes the Shiite-controlled south that sits on two-thirds of Iraq’s oil reserves, to pursue greater autonomy.
Last week Maliki met with Rex Tillerson, the Chief Executive Officer, in Baghdad, in an attempt to persuade him to abandon the Kurdish enterprise of the company.
What angered Maliki about Exxon signing with the Kurds is that it did so knowing it would surrender its 60 % stake in the $ 50 billion West Qurna field in the south, which is one of the biggest fields in Iraq that it secured under a contract with Baghdad in 2010.
But Exxon did not show any sign of quitting Kurdistan in spite of the pressure from Baghdad. Nor is there any indication the KRG’s burgeoning energy program is slowing down.
It has stopped pumping oil into the Iraqi pipeline network for export, and is trucking oil north through Turkey for export via its Ceyhan terminal on the Mediterranean.
Turkey, with scarce energy resources of its own, is strictly allied with the KRG. It is planning to build oil and gas pipeline to Ceyhan to give the landlocked Kurds an independent direct export route.
The European oil companies are purchasing a growing volume of Kurdish crude and more majors may follow the path to Kurdistan.