ExxonMobil-KRG deal: A puzzling move at a critical time

The other extreme is firm stand based on disqualify and terminate. The government could first disqualify ExxonMobil from the forthcoming fourth bid round, and immediately invoke the Termination clause under Article 8.1 (a) for committing “a breach of a material obligation of this Contract”. The material obligation in the contract is the adherence to “Law” as defined in item 46 of article one.

The disqualification and termination would lead to exclude ExxonMobil from any future business opportunity such as the participation in the exploration bid rounds, the common water injection project and any other activity. The termination clause would, according to sub article 37.4-.8, lead eventually to an international arbitration, which could take time to reach a verdict. Consequently, the development of WQ1 would suffer a blow (but not suspend production) until either an amicable solution with ExxonMobil is reached or the arbitration process ends. In both cases there would be lost time and revenues, and could be compensation if the arbitration case is lost.

On the diplomatic front, this option could sever the bilateral relation with the US, as it is inconceivable that ExxonMobil takes this action without States Department knowledge or even blessing. The US might retaliate by muddling through internal politics and destabilize the country even further. But this is a risky endeavor for the US to follow!

On the other hand this option would consolidate unified petroleum policy, bring to the fore of national attention the sovereignty issue, provide strong support for the governments in its negotiation with KRG, particularly with regards to oil and gas law and prevent IOCs from muddling in the internal politics. In other words the outcomes of this option could be the exact reverse of the first tacit acquiescence option.

Both options are difficult, risky and could have negative consequences. But the government has to act as representative of an independent sovereign state and protect the integrity and interests of the country.

 

Mr Jiyad is an independent development consultant, scholar and Associate with Centre for Global Energy Studies (CGES), London. He was formerly a senior economist with the Iraq National Oil Company and Iraq’s Ministry of Oil, Chief Expert for the Council of Ministers, Director at the Ministry of Trade, and International Specialist with UN organizations in Uganda, Sudan and Jordan. He is now based in Norway (Email: [email protected]).

Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

One Response to ExxonMobil-KRG deal: A puzzling move at a critical time

  1. dario_kurd 24th November 2011 at 18:09 #

    Mr sharistani's ministry of oil has taken 10 billion of iraqi's money since 2003 to increase oil production. however the iraqi oil production level has droped to the level bellow 2003. this is happening while today Kurdistan production capacity is 200 barrels per day from nothing in 2003. thanks to Kurdistan's investment friendly cliamte and local gas production, the region not only solved the problem of power shortages but now have an access of power production that suppliers Kirkuk and Musil.

    so it is better for Mr sharistani to follow Kurdistan's example to increase iraqi oil production, so pushing away world's largest oil company hardly helps iraqi oil industry.