Atef Hassan/Reuters
An oil field in Nasiriya, in southern Iraq, a region that is far more important to global oil production than Kurdistan, where exploration is at a relatively early stage.
LONDON — The re-emergence of Iraq as an oil powerhouse is sending ripples through the Middle East and the industry as a whole.
Iraq has surpassed Iran as the second-largest member of the Organization of the Petroleum Exporting Countries, after Saudi Arabia, raising questions about whether other countries will need to reduce oil production to accommodate a rising Iraq.
But tensions are evident between the federal government in Baghdad and the semiautonomous Kurdistan Regional Government, which is based in Erbil in the north.
The Kurds, who suffered terribly under Saddam Hussein, are determined to maintain their autonomy from Baghdad — not least by developing their own oil resources. The federal government insists that it alone has the authority to grant access to Iraq’s natural resources. But the Kurds are attracting some of the world’s top oil companies.
Strains between the regional and federal governments were on display Wednesday at the Oil and Money Conference convened here by The International Herald Tribune and the Energy Intelligence Group, a provider of independent analysis and data to the global energy industry.
Hussain al-Shahristani, the Iraqi deputy prime minister, who has helped draft contracts to rehabilitate Iraqi oil fields, said Tuesday that Exxon Mobil was in the advanced stages of organizing a sale of its 60 percent stake in a premier Iraqi project, the West Qurna 1 field, to buyers approved by the Iraqi government.
Iraq has been at loggerheads with Exxon since it signed an exploration deal with the Kurdistan government last year. Mr. Shahristani said the Iraqi government did not recognize Kurdish contracts with oil companies.
Patrick J. McGinn, an Exxon Mobil spokesman, declined to comment.
Mr. Shahristani warned Total, the French oil giant, and other companies that they could be forced out of their Iraqi projects if they have their feet in both camps.
“They must either decide to present their contract to the federal government for approval or they are in breach of their contract” with Iraq, he said.
But Mr. Shahristani is losing the battle to persuade the large Western oil companies. Exxon Mobil, Total, Chevron and Gazprom have all decided that Kurdish oil deals have sufficient potential for profit to be worth risking the ire of Baghdad.
Philip Lambert, who leads the London-based advisory firm Lambert Energy, said at the conference that the surge in deals in Kurdistan, compared with a relatively moribund environment in Iraq proper, suggested that the environment in Kurdistan was healthier.
One reason, as Mr. Shahristani acknowledged, is that Baghdad’s contracts are among the toughest in the world. They offer such low returns that — with continued security risks and infrastructure problems — Western companies are deciding that they would be better off making deals with the Kurds.
Under Kurdistan contracts, oil companies can earn $3 to $5 a barrel, compared with about $1 a barrel under contracts with the Iraqi federal government, according to Wood Mackenzie, a consulting firm in Edinburgh. The large companies have been signing exploration deals with Kurdistan, not production contracts. That leaves several years for the governments in Baghdad and Erbil to reach an accommodation before the fields in the north start producing.
Southern Iraq is far more important to the current global oil picture, with more than three million barrels a day of production, while Kurdistan is struggling to export 200,000 barrels a day. But exploration in Kurdistan is still at a relatively early stage, having started only after Hussein’s ouster in 2003. Companies looking for oil in the north have had a high success rate.
Despite Mr. Shahristani’s prickliness, signs suggest that Baghdad and the Kurdistan government could reach an understanding soon. Under an agreement last summer, Kurdistan has been putting oil into the main Iraq-Turkey pipeline. These exports had been suspended over payment disputes between Baghdad and Erbil, leaving companies like Genel Energy, led by Tony Hayward, the former BP chief, with no other option than to sell their oil cheaply in the Kurdish market or truck it to Turkey.
Kurdistan’s success in attracting the big oil companies seems to have influenced thinking in Baghdad. Mr. Shahristani said there was nothing in Iraqi law that prevented the award of contracts that give companies a slice of the output of fields for exploration. Companies prefer these contracts to the service deals that Baghdad has offered, which give companies a per-barrel fee for renovating old fields like West Qurna.
At the conference, Mr. Shahristani dismissed suggestions that Iraq would have trouble replacing Exxon Mobil, saying that international companies were interested.
He indicated that he had dialed back his expectations for Iraqi oil production in the next few years to about nine million barrels a day from the 12 million barrels a day that Iraq would achieve if the oil companies delivered on all the contracts they have signed. Iraq’s approach could jeopardize Baghdad’s ambitions to triple its current oil output, a herculean task.
Although Iraq is an OPEC member, it does not have a quota, in recognition of its need for revenue to rebuild. Mr. Shahristani said that once Iraq had reached four million to five million barrels a day, it could start discussing its production with other OPEC members.
“We don’t think that Iraq is going to be squeezing any country out of the market,” he said.
Baghdad and Kurdistan at Odds Over Oil
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Baghdad and Kurdistan at Odds Over Oil
