By ANDREW E. KRAMER
Published: November 13, 2011
BAGHDAD — A deputy prime minister overseeing Iraq’s oil industry criticized Exxon Mobil on Sunday over its effort to expand into the semiautonomous Kurdish region in the country’s north.
The statement from the official, Hussein al-Shahristani, said the central government had cautioned Exxon against pursuing oil deals in Kurdistan. The government considers such agreements to be illegal until long-awaited rules can be worked that would divide revenues among Iraq’s fractious regions.
Mr. Shahristani’s office issued its statement after Exxon, whose headquarters are in Irving, Tex., became the first major international oil company to sign a contract in Kurdistan.
Exxon declined to comment, but officials in Kurdistan confirmed that a contract had been signed on Oct. 18. On Sunday, the regional energy minister, Ashti Hawrami, told reporters at an oil conference in Erbil, the Kurdish capital, that Exxon had been awarded six exploration blocks.
With the deal, Exxon is wading into a dispute that has dogged Iraq since the American invasion in 2003. Oil is the source of Iraq’s wealth, and the American invasion threw control of the country’s rich reserves into question, worsening the longstanding enmity between the Kurds and other Iraqis. President George W. Bush’s administration considered Iraq’s passage of an oil law to split revenues a crucial benchmark to long-term peace.
The legal argument against any deal remains unsettled. Iraq’s Constitution allows regions to strike their own oil deals, but the central government says there is no law that spells out how that can happen.
Many smaller oil companies, including American producers like Marathon and Hunt, have signed contracts with the Kurdistan regional government. But the larger companies had held back to ensure that they retain deals in the south.
Michael Klare, a professor at Hampshire College and an authority on the Iraqi oil industry, speculated that Exxon might be betting that Iraq would not follow through on its threats of punishment, recognizing that the company’s investment elsewhere was critical to the country’s economic revival.
“Both Exxon and the Iraqis understand that Iraq has no hope of reaching its lofty goals of higher oil output without Exxon’s involvement,” Professor Klare said. “Threats to punish the company for investing in the Kurdish area are hollow.”
Critics said oil companies that made deals with Kurdistan after the overthrow of Saddam Hussein’s government were pursuing development in a manner that heightened ethnic tensions between Arabs and Kurds and had done little to contribute to economic stability.
For now, at least, the Iraqi government appears to be taking a strongly worded stance whose details are somewhat vague. “The Iraqi government will deal with any company that violates the law the same way it dealt with similar companies before,” Mr. Shahristani’s statement said on Saturday.
In the past, the government has excluded oil companies active in Kurdistan from new auctions elsewhere. It was unclear whether the statement implied any threat to revoke Exxon’s existing contracts, which would be significant. A spokesman for Mr. Shahristani declined to elaborate.
Beyond the ripples that oil deals send through Iraqi’s fragile politics, they are important for bringing oil to world markets, but only if relations between the oil companies and the government are smooth enough to allow investment.
The State Department and the military have sought to tamp down antagonism between Kurdistan and the central government for years, and American troops have died trying to keep the peace along that internal border. With the American withdrawal imminent, concerns are mounting that ethnic tensions could again threaten stability.
Under a 2009 contract, Exxon is leading a consortium developing one of Iraq’s largest oil fields outside Basra near the Persian Gulf.
Under that agreement, Exxon and its partners agreed to invest $50 billion over seven years to increase output by about two million barrels of oil a day there, at West Qurna Phase 1, bringing more oil to the market than the United States now produces in the Gulf of Mexico. Margins, though, are low. Kurdistan, however, offered more lucrative production-sharing agreements, allowing the company to earn a larger share of revenues and to count more of the crude on its books, which helps lift share prices.