Thomko Petro Chemical Blog

Iraqi Kurds self rule their own oil-rich northern territory,and have signed at least eight oil contracts, and 20 additional contracts for oil exploration and production are expected to be signed by mid 2008.

Announcement of these new contracts bring more tension to the already tense situation as to how Iraq's oil and gas reserves should be managed. Iraq's oil minister has accused the Kurds of using military force in order to prevent Baghdad from developing oil fields in the north. The Kurds however say that there is no true to the oil minister's statement.

The new Kurdish contracts come as tension escalates in Iraq over how the country's massive oil and gas resources should be managed, with the central government - backed by the U.S. administration - pushing for more centralized control.

The Kurds enacted their own oil law last fall which controls the oil sector in the northern region - and this did not set well with the central government in Badhdad.

One of the contracts the Kurds have signed is with a Russian company (TNK BP.RS) of which BP holds a 50% interest. Iraq's oil minister calls these contracts illegal, but the Kurds say the current constitution allows them to be a federal region, and they do not need the approval of Iraq's oil minister and cabinet.  

The Kurdish government has declined to announce other contracts or release names of the oil companies, but many of the companies are smaller, rather than the big players. Once these contracts are signed, this will double the number of oil companies in the Northern Iraq, and produce approximately $10 billion in exploration and production investment. The Kurds are planning to invest some of the oil money to solve the fuel and power shortages in the region.

Chevron and ExxonMobil are trying to avoid alienating the Iraq oil minister by concentrating on lucrative oil contracts in southern Iraq, and not pursue oil contracts with the Kurds.

The larger companies are also trying to avoid the legal problems with the new hydrocarbon law, which will establish federal rules for the oil and gas industry. And any oil that will be shipped from the Kurdish region will require a permit, which raises other legal issues.

So, why are the smaller companies signing contracts with the Kurds with unknown legal issues that may be looming? Well for one, the Kurds are more willing to give foreign companies better terms than Baghdad. The Kurds maintain that their contract agreements will actually give a better rate of return. Many of the larger projects are expected to run over budget, along with schedules, and in the end may produce less profit for the country as a whole - at least that the Kurdish spin.

Currently the Kurds and the central Iraqi government are obviously at odds. Baghdad has even threatened to blacklist the companies that sign with the Kurds. So only time will tell if the Kurds win out with the smaller oil companies, or if the central government in Iraq wins out with the larger, major oil players.

Most of the oil in Iraq is concentrated in the north by the Kurds, and in the southern region controlled by the Shiites - which presents an opportunity for more violence between the Shiites and Sunni's. So it's still very much a three way fight inside Iraq for the oil, and then the U.S. is pushing Baghdad for a national reconciliation, and of course oil contracts too.   

What ever the outcome - It is about oil and profits for everyone involved.