Over the past two weeks, the Kurdistan Regional Government (KRG) has enraged Iraq’s federal authorities by signing oil contracts first with Chevron, and then with Total. Then, on Wednesday – the same day Gazprom Neft revealed it too had farmed into two licences in the region – the KRG offered an olive branch to Baghdad. “The KRG has decided to resume exports from the region to build confidence with the federal government, with the purpose of squaring up all the oil and gas issues in Iraq,” KRG Minister of Natural Resources Ashti Hawrami announced.
With that, exports of 100,000 barrels per day will resume for one month. If, in that time, the federal government settles all outstanding payments to the KRG, exports will be raised to 200,000 b/d or more. If not, they will be halted again.
With this carrot and stick in hand, Hawrami urged Baghdad to “put aside futile and time-wasting attempts to re-impose an illegal centralised control over oil and gas in Iraq. The country is crying out for cooperation and coordination on these issues, not confrontation”.
Southern Iraq may hold vast oil reserves, but low renumeration fees, political bickering and ongoing security challenges dull the shine of this prize. In contrast, the KRG offers the oil industry a relatively professional, business-friendly and transparent operating environment. Notably, in a slick public relations initiative, the KRG has made all the oil contracts it has signed freely available on its website.
As Zac Phillips, head of oil and gas research at Fox-Davies, said, Baghdad has learned to its detriment that it cannot take supermajors and just “give them crumbs from a giant’s table”.
While the federal authorities may follow through on threats to rescind the oil contracts it signed with Total, Gazprom Neft and ExxonMobil, this will be painful and troublesome for a government already struggling to meet ambitious production targets. It is not surprising the KRG and the supermajors are, therefore, willing to call Baghdad’s bluff.
And, if the federal government is unwilling to meet Hawrami’s demands, Irbil has the oil and expertise – and may soon have its own independent export agreements – to go it alone (see KRI gas: playing the waiting game, 20 July 2012).
So, in demanding Baghdad rejects its claims for centralised controls of the oil resources of Kurdistan, Hawrami is not “squaring up all the oil and gas issues in Iraq”, but squaring up for a fight.
And it seems Exxon, Total, Chevron and Gazprom have already cast their bets as to who will win.