ISTANBUL -- An oil-exploration agreement between ExxonMobil and Iraq's Kurdistan regional government has led to a political row that could determine Iraq's future political composition.
At stake for the semi-autonomous region, which seeks to tap into its enormous potential as an oil producer, is the right to cut deals on its own. Baghdad bristles at this, arguing that any oil deals must be worked out with the central government.
And in the middle are the oil companies, who have been warned by the U.S. State Department of the "serious political and legal" risks involved in such dealing with regional authorities before a national agreement is worked out.
"It's no longer the centralized Iraq, for Baghdad, to make all the decisions. The constitution has entitled us to have the right and we are not ready to give [in] on this," says Falah Mustafa Bakir, the head of the foreign-relations department for the Kurdistan regional government (KRG).
"It is very important for the KRG and also [the] rest of Iraq, to develop our oil industry and natural-resources sector. Because in the past the people of Kurdistan, and also some other parts of Iraq, have suffered because of wrong policies of the former regime."
The dispute over negotiating rights between the KRG and Baghdad is nothing new -- negotiations over a new oil law to resolve the dispute are in their fourth year. But the announcement on November 11 of an agreement between the KRG and ExxonMobil to explore for oil in the northern region was a step too far in the eyes of the central authorities.
During a visit to London this week, Iraqi Deputy Prime Minister Hussain al-Shahristani said the agreement was illegal and that the Iraqi government was considering its response.
Oil Companies Warned
Iraq Oil Ministry spokesman Asim Jihad told RFE/RL's Radio Free Iraq that it was too early to determine a course of action until ExxonMobil's position had been determined. However, he said, under the ministry's regulations the signing of any contract without the knowledge of the federal government or the Oil Ministry could lead the ministry to "boycott this company and not deal with it."
That could be a serious blow to the oil major, which could stand to lose its current contract with the Iraqi government on the development of West Qurna Phase 1, an oil field in southern Iraq, and the right to participate in upcoming bids on the extraction of Iraqi oil.
The KRG has gone out of its way to directly negotiate with oil companies to search for what is believed to be reserves that would rank the Kurdish region among the word's top-10 producers. Michael Howard, an adviser to the KRG's oil minister, says the issue is both about righting a past wrong and building a future for Iraq's Kurds.
"Historically, Kurdistan was kept away from the oil industry; they were not allowed to develop the abundant natural resources. So it has been very important for the people here to be able to use those natural resources to help modernize the economy in the region," Howard says.
"The oil companies that are coming in are bringing in international standards of expertise, which is of course rubbing off on the local work force. And the oil companies that are working here are also contributing to the community in the sense they are building everything from schools to roads to water-treatment centers."
Point Of A Separatist Wedge?
One of the main reasons suggested as to why the Kurdish region's energy went unexploited during Saddam Hussein's rule was the fear that such wealth could empower the restive minority in any future bid to secede. Today those suspicions appear to remain.
Muwaffaq al-Rubayi, a former Iraqi national security adviser, alluded to the thinking within the corridors of power in Iraq during a recent address in Irbil. "Some people perceive this contract to be targeting the federal government, to weaken the federal government, and [that] it has some political connotation within it," he said.
Baghdad's tough response may be because it comes at a time when Iraq's Sunni Muslims appear increasingly interested in gaining similar autonomy rights to those of the Kurds. Earlier this month, Salah al-Din Province, the birthplace of Saddam Hussein and a Baathist stronghold, declared autonomy.
The move was quickly dismissed by Baghdad as unconstitutional, but the KRG's Bakir supports their right to make such a demand. "Why not? We cannot say something is good for us and not good for others," he said. "No, the principle of federalism is stipulated in the constitution and over 80 percent of the Iraqi people voted for that and we believe federalism strengthens the country."
Baghdad's tough policy may prove to be a double-edged sword if, as observers warn, oil companies are forced to choose between investing either with regional authorities or with Baghdad.
That puts pressure on Baghdad to put the finishing touches on the long-awaited oil law. Bakir says the hope is that a draft will be presented to parliament by the end of the year.
But that may be a little optimistic, considering that agreement on the law is dependent on consensus on the distribution of power, something observers say is lacking.
Until then, Bakir vows that the KRG will "absolutely" continue signing new oil contracts. "When we have a successful policy, we adopt that policy and we will continue with it," he says.