In the offices of United States the lawyers and the top executives of Exxon Mobil are poring over two sets of deals, weighing a decision that could shift the balance of power in Iraq.
Nuri al-Maliki, who is the Iraqi Prime Minister, last week convened a meeting in a hurry with the chief executive of Exxon Mobil, Rex Tillerson in a bid for wooing back the U.S. major, which had seemed intent on pulling out of the $ 50 billion West Qurna 1 oilfield in the south, in an area under Baghdad’s control.
Since signing for the six blocs with the regional government of Kurdistan in the year 2011, Exxon has located itself on one of Iraq’s deepest faultiness, bringing to a head friction between northern enclave and Baghdad, which says that only it has the right to grant oil deals and control crude exports.
It was revealed by the Industry sources that Maliki has offered Tillerson substantial incentives for staying in Iraq’s southern oilfields as long as the company surrenders its assets in the autonomous Kurdish region.
Abdul Kareem Luaibi, who is the Oil Minister of Iraq, said on Sunday (27th January, 2013) that a final decision is due within the next few days. It remains to be seen which way Exxon Mobil’s compass would swing. The company did not agree in commenting on the impending decision.
A former U.S. diplomat said that the loss of prestige would really be big, contemplating the fallout for Kurdistan if Exxon were to quit the region in favor of Baghdad. The presence of Exxon there levels the political playing field.
As the first chief oil company to risk Baghdad’s ire by venturing north, Exxon’s afforded the Kurds a victory in their turf war with the central government over how to exploit Iraq’s hydrocarbon riches.
The U.S. major’s vote of confidence opened the door for others such as Total, Russia’s Gazprom Neft and Chevron Corp., which lately added a third bloc to its Kurdish portfolio and is eyeing further acquisitions.
Three of Exxon’ blocs however are situated in the disputed areas, an oil-rich band of territory over which both Baghdad and the Kurds demand jurisdiction and where the Iraqi army and Kurdish troops are facing off against each other.
Industry sources expressed that Tillerson raised concerns about security at a meeting in Switzerland with the Iraqi Kurdish region’s president, Masoud Barzani, although Kurdistan said later that Exxon had restated its commitment to working in the region.
But Baghdad also has expectation that Exxon to take its side.
The Iraqi Oil Ministry official said that they are positive the company is not willing to quit West Qurna, noting that output from the oilfield alone surpasses total current Kurdish production capacity.
He also added that they think Exxon will stop their actions in Kurdistan and wait for the ultimate solutions for unresolved matters. He had asked to remain anonymous as he was not allowed to speak to the media.
New legislation to govern the world’s fourth biggest oil reserves has been caught up for years in a strive over how to share authority between Iraq’s Sunni, Shi’ite and Kurdish factions, which has intensified since U.S. troops withdrew almost a year back.
The Kurds expresses that the right to dictate their own oil strategy is enshrined in the country’s federal constitution, but Baghdad refuses deals signed by the region as illegal and has blacklisted some companies working there.
The global oil companies have been prepared to take that risk in return for Kurdistan’s better deal terms, security and an easier working ambiance, as opposed to the bureaucracy and infrastructure bottlenecks that hamper oil projects in the rest of Iraq.
Baghdad would have to make a promise Exxon favorable terms for attracting it away from the north, but analysis and industry sources doubt Maliki’s capacity for delivering those, and say it would be a mistake for him to do so.
A senior executive from a rival company stated that if they (Exxon) choose Baghdad, he is sure that they will want sweeteners. But if they get better terms, others will want the same thing.
It was even suggested by some industry sources that may have been part of Exxon’s calculations all along: that when defying Baghdad the company figured out it might ultimately be capable of using its Kurdish deals as leverage for extracting concessions in the south.
POINT OF NO RETURN
In spite of the loss of face if Exxon were to back away from Kurdistan, specialists say such a move would eventually do little to slow the region’s drive towards greater energy autonomy from Baghdad.
Another industry source said that Exxon was a game-changer then, but things have change a lot.
Now there are other main oil companies waiting to snap up acreage in what has been described as one of the final frontiers for onshore oil exploration, and unlikely they are going to be deterred.
The actual challenge is finding the new ways of selling oil from Kurdistan, until now transported to world markets through a Baghdad-controlled pipeline running from Kirkuk to the Turkish port of Ceyhan.
But the exports of Kurdistan via that channel dried up in the month December from a peak of around 200,000 bpd as a result of a row over payments with Baghdad.
The Kurds are fed up of waiting and so have already commenced bypassing the federal pipeline network by trucking small quantities of crude over the Turkish border in exchange for refined products. The deal is tiny, but really symbolic.
An industry expressed that oil and gas wise; it is a point of no return. From this point on, the Kurds would not agree to a centralized oil and gas policy. Other regions will do the same.
Kurdistan is waiting for the answer from Turkey. A broad energy partnership between them has been in the works since 2012.
A diplomatic source familiar with the negotiation revealed that this is going to be a big bang contract. That is the only way to do it, engaging everything at the same time.
Even though, the details are still indistinct, but industry sources stated that it would range from exploration to export and seek to open up a new energy corridor to Turkey that would decrease Ankara’s dependence on Russia and Iran for gas and oil.
The contract will engage a new Turkish body taking a stake in some Kurdish blocs and an alternative pipeline, which the United States is actively dejecting for fear it will further undermine Iraq and threaten its federal integrity.
It will also have to conclude a mechanism for paying the Kurds directly for their exports instead of the arrangement at present whereby Baghdad receives the proceeds and then passed on 17 % of the country’s profits as a whole.
The Kurdish officials have long complained what they end up receiving is in fact closer to 10 %.
A diplomatic source said that when the money begins flowing straight to Arbil, that will be the game-changer.
The officials of Kurdistan say that they will keep the share to which they are entitled and send the rest on to Baghdad, but an independent profits stream would theoretically give the region the means to stand on its own economically.
Assuming they could export 1 million barrels per day (bpd), they would make more profits from that than their share of the national budget at present, it depends on how much oil the south is producing, said Robin Mills of UAE-based energy consultant Manaarco.
Opponents of the tie-up worry it would make Kurdistan too dependent on Turkey, which has a fraught relation with its own Kurdish community and will be keen to have the upper hand in any dealings with their ethnic kin in Iraq.
But champions of the deal argue that landlocked Kurdistan has few options besides isolated Iran and war-torn Syria -- its other neighbors -- neither of which has the strategic advantages of Turkey.
A senior Kurdish regional government official said that economically they are already at their mercy. Once they begin mass producing, the equation changes and the relationship with Turkey becomes totally independent.
Majority Sunni Turkey’s links with Iraqi Kurdistan have already come at a price, heightening tensions between Ankara and the Shi’ite-led government in Baghdad.
Ankara was blamed by Baghdad for the complicity in smuggling Iraqi oil, and late last year prevented Turkey’s energy minister from attending an oil conference sponsored by Exxon in Kurdistan by denying his plane permission to land.
Selahattin Cimen, who is the Turkish Deputy Energy Minister, said in a conference that the collaboration between the KRG (Kurdistan Regional Government) and Turkey for transferring oil and gas to the world markets will strengthen their ties.
But given the regional turmoil and political ramifications of building a pipeline to Turkey, it may be less imminent than the rumors suggest.
Tayyip Erdogan, who is the Turkish Prime Minister, has already made a foe along his longest border with Syria, having turned his back on one-time friend, President Bashar al-Assar and embraced the rebels fighting him.
Mills said that of course the Turks want access to Kurdish energy, but is it worth torpedo-ing relations with Baghdad when one has a crisis in Syria to deal with? He said that he believes that they may wait.