Times 2

Exxon Kurdistan foray tests Iraq's centralist resolve

By Patrick Markey

BAGHDAD (Reuters) - Exxon Mobil's venture into Iraqi Kurdistan challenges Prime Minister Nuri al-Maliki's resolve against growing regional separatism and tests the investment strategy of the oil majors in Iraq.

Exxon is the first major oil company to test the waters by signing for six blocs with the Kurdistan Regional Government (KRG) in north Iraq, which is locked in a feud with the Arab-dominated central government over territory and oil rights.

Political standoff

Kurdistan has enjoyed more stability and security than the rest of Iraq, and its potential resources have already drawn smaller oil players like Norway's DNO and Gulf Keystone. But its festering political quarrel with Baghdad has kept majors away until now.

Exxon's foray into Kurdistan has forced a political stand-off between one of the world's largest oil companies and an Iraqi government determined to exercise sovereignty as U.S. troops withdraw eight years after the fall of former leader Saddam Hussein.

Deputy Prime Minister for Energy Hussain al-Shahristani, architect of many of Iraq's deals with foreign companies and a hard-liner against Kurdistan oil autonomy, said on Tuesday the government was considering sanctioning Exxon.

Baghdad had already warned that any deal foreign companies sign with Kurdistan would be deemed illegal, saying Exxon's move could jeopardize its huge contract for the 8.7 billion barrel West Qurna Phase One oilfield in southern Iraq.

But for Maliki, dealing with Exxon is a tricky balance: Taking a hard line could push more deals north and risk souring future investments in major southern fields as the OPEC country tries to rebuild its industry after years of conflict.

Ceding too much to Kurdistan may upset the balance with other regions chafing for more autonomy from Maliki's central government authority and test the frail power-sharing coalition in Baghdad made up of Sunni Muslim, Shi'ite and Kurdish blocks.

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