Turkey's State Oil Co & Exxon to Develop in Kurdistan

Source: The Wall Street Journal 5/14/2013, Location: Middle East

Turkey's state-run oil firm has struck an agreement with U.S. oil giant Exxon Mobil Corp. (XOM) to develop joint projects in Kurdish-administered northern Iraq, the country's Prime Minister Recep Tayyip Erdogan said. Mr. Erdogan also said that Turkey can pursue separate arrangements with the Erbil-based Kurdistan Regional Government, or KRG.

"Countries from various parts of the world are taking steps to explore and produce oil in different parts of Iraq, and then deliver it to world oil markets. There's nothing more normal, more natural than Turkey, which provides all kinds of support and aid to its next-door neighbor, to take a step that is based on mutual benefit," Mr. Erdogan said.

The prime minister's statements, just before leaving for the U.S. to meet with President Barack Obama, contrast sharply with a carefully-honed policy in Ankara. Turkish officials have consistently called for the territorial integrity of Iraq and reiterated that they won't pursue any deals that would undermine the country's stability.

The Iraqi central government in Baghdad has long opposed the KRG's agreements with oil companies and plans for oil exports to Turkey.

"The regional government in northern Iraq has a constitutional right to 17% of [oil and gas] revenues. Since it has the ability to readily spend that share, it's in its right to use that in exchanges with Turkey. It is possible for us to have mutual agreements, there's nothing to prevent that," Mr. Erdogan told reporters in televised comments from Ankara before boarding his jet.

There is a deep divide between Erbil and Baghdad in the interpretation of Iraq's constitution. The Kurds maintain that it allows them the right to grant new contracts while letting the central government manage existing licenses. Yet Iraqi Prime Minister Nouri al-Maliki says all new agreements need to be approved by Baghdad.

Washington has also been cool on ventures that lack Baghdad's approval, fearing that empowering regional players like the Kurds and Sunnis may push Mr. Maliki, a Shia, closer to Iran and tip the delicate power balance in the Middle East following the U.S. withdrawal from Iraq, analysts say.

Still, that hasn't stopped drilling in northern Iraq by energy giants like Exxon Mobil and Chevron Corp. (CVX), as well as smaller explorers like Turkey-based Genel Energy PLC (GENL.LN) , run by former BP PLC (BP) chief Tony Hayward.


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