Time to Move on: Iraq's Oil & Gas Impasse Explained

However at a media briefing, officials from the State Department denied that they had known anything about the Exxon deal. “The United States has advised all of our companies, including ExxonMobil, that want to invest in the Iraqi [energy] sector that they run significant political and legal risks if they sign contracts with any parties in Iraq before there has been a national agreement to work out the complex issues having to do with oil revenue distribution within Iraq,” an official from the State Department said. The State Department makes it clear that it does not differentiate between north and south by saying "any parties in Iraq", indicating as much disapproval of the Exxon deal in Kurdistan as any deal done in the south.

Meanwhile the Iraqi government is threatening to impose sanctions on any oil company that enters into a separate agreement with Iraqi Kurdistan. Most recently they announced that ExxonMobil would be excluded from the next round of bidding for further contracts. Despite the strong language though, the Iraqi government probably realize the risks of confronting one of the boggest companies in the world whose annual profits are larger that the entire Iraqi budget.

Then again, none of this is new. Baghdad and Erbil have been quarrelling about who controls oil and hydrocarbon policy in Iraq for a long time.

The first attempt at drafting legislation on the main, and possibly only, source of national income for Iraq was made in 2006 and 2007. The draft laws looked promising and were well formulated. However after much tampering and political negotiation - annexing, adding, removing and amending important sections – the law became unworkable and the first attempt to legislate the sector failed. As such, it reflected the dysfunctional nature of Iraqi politics. And amid all the political infighting, a frustrated Iraqi Kurdistan decided to introduce its own oil and gas law.

After the troubled introduction of the first draft of the Oil and Gas Bill in 2007, tensions between Baghdad and Iraqi Kurdistan have escalated. At one stage, all oil exports from out of Iraqi Kurdistan stopped. Baghdad said that it refused to acknowledge any contracts made by Iraqi Kurdistan on its own while the administration in Iraqi Kurdistan said that its right to grant contracts was guaranteed by Iraq’s national constitution, which had also given the region its autonomy.