KRG Contract Disputes

The Iraqi Constitution of 2005 is unequivocal about the fact that the country's natural resources, such as oil and gas, are owned by "all the people of Iraq in all regions and governorates." The Constitution also states that the federal government will manage oil and gas extracted from Iraqi fields with regional governments and governates. However the document is ambiguous about the specific dynamics, revenue distribution and competencies of the various Iraqi governmental authorities involved.

This ambiguity in the Constitution has led to various conflicts, since the federal government maintains that contracts signed unilaterally by a regional government (i.e., the Kurdistan Regional Government), after the draft federal oil and gas laws were approved by Iraqi Council of Ministers in February 2007, are "illegal" until review and approval by the Iraqi Ministry of Oil. The Kurdistan Regional Government (KRG) maintains that the ambiguity in the Constitution allows for regional government's to sign oil contracts with IOCs on their own. The KRG also maintains that objections to their interpretation of the Constitution are actually attempts to limit Kurdish autonomy.

IOCs defy Baghdad and move into Kurdistan
In 2006, Norwegian energy company DNO drilled the first new oil well since the invasion of Iraq in Iraqi Kurdistan. Since then, other companies have entered the region, such as: Genel Enerji from Turkey, Gulf Keystone Petroleum from the United Kingdom, Hess Corporation and Marathon Oil Company from the United States, Repsol YPF from Spain, OMV from Austria, Western Oil Sands from Canada via its subsidiary WesternZagros Resources, and Sterling Energy from the United Kingdom.

However the disputes over the KRG's contracts with IOCs reached a critical point when the regional government announced, on 13 November 2011, that it had awarded six exploration and production licenses to ExxonMobil Corporation, the world's largest oil company. Exxon was later followed into the region by French Total in July 2012, drawn by the more attractive fiscal terms offered than in the south of the country and by the region's vast oil reserves, by buying a stake in two Kurdish exploration blocks. Reuters reported in September 2012 that Shell had also been encouraged by the activities of its commercial rivals to start talks with the KRG with a view to signing energy deals, a move denied by Shell executives in talks with officials in Baghdad. The Iraqi government had threatened Shell with "serious consequences" if it signed a deal with the regional government. Reuters also reported that Norwegian Statoil had been "looking closely" at KRG exploration deals.

In retaliation for deals struck in Erbil, the central government began to 'blacklist' several of the companies which signed with the KRG. New-York based Hess was blacklisted in 2011 and in February 2012 a government spokesmen stated that Exxon would not be allowed to participate in the upcoming fourth bidding round and warned that in the future the US company would have to choose between its contract to develop the southern West Qurna field and its newly signed contracts in Kurdistan. In July 2012 Chevron was also barred from bidding on contracts in wider Iraq after buying stakes in the north. However Adnan Al Janabi, chairman of the Oil and Energy Committee in the Iraqi Council of Representatives, has said that the Oil Ministry does not in fact have the legal authority to blacklist Exxon over its Kurdistan contracts.

As of November 2012 Exxon continued to operate its West Qurna stake in southern Iraq, however Iraq Oil Report reported that the major was taking steps to look for buyers for its stake in the development. Commenting on the implications of the developments above, industry specialist Steve LeVine predicted that the companies signing these deals could become "an unintentional fifth column in Kurdistan's move towards economic autonomy".

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