UPDATE 2-Iraq attacks Exxon, says U.S. supports Baghdad

Tue Nov 22, 2011 3:13pm GMT

Quotes

   

* Shahristani says sanctions against Exxon to follow soon

* Says US would have asked Exxon to clear deal with Baghdad

* Consultants says Exxon game risky, miscalculation possible (Adds quotes, background)

By Simon Falush and Carolyn Cohn

LONDON, Nov 22 (Reuters) - Iraq said on Tuesday it would slap sanctions on U.S. oil major Exxon Mobil for signing a deal with the Kurdish region, which it said came without any approval from either Baghdad or Washington.

"The Iraqi government is considering sanctions, and will inform the company before they make a public announcement," Deputy Prime Minister for Energy Hussain al-Shahristani told an industry conference in London.

"The position of the U.S. government has been that they were unaware of it and if they had been asked, they would have obliged (Exxon) to get approval of the Iraqi government," he told the audience packed with hundreds of Western executives and consultants.

The comment means Exxon could lose its giant contracts to develop fields in southern Iraq after agreeing to six exploration deals with the northern Kurdish region, which is at loggerheads with the central government in Baghdad over oil and land rights.

Exxon has yet to comment on the deal, which some analysts and industry insiders say could have been a rare miscalculation by the world's largest publicly traded oil company of political risks in Iraq.

U.S. State Department has not yet commented on the deal.

"Everyone was keen to see what Shahristani had to say. And he could not have agreed because fundamentally it would show Baghdad has lost. If he approved the Kurdish deal others would rush and sign similar deal and other regions such as Basrah would ask for more autonomy," said one risk consultant with clients in Iraq, who asked not to be identified.

"Washington must be furious. What can you say when your own company goes and destroys stability in Iraq?," he added.

Other industry insiders said they believed Exxon might still win the risky game.

"I don't think that Iraq has the right to cancel the existing contract. They can blacklist Exxon from future contracts, but Exxon probably sees better opportunities in Kurdistan," said one delegate at the conference.

"Maybe Exxon is just playing the long game. Shahristani is the most hawkish in the cabinet, so perhaps Exxon is taking the long view, hoping that he will leave, and that it will get other contracts later. They see that they can get better terms in Kurdistan for now," he added.

FEARS OF SANCTIONS

Iraq is one of the world's biggest holder of oil reserves and presence in the country is key for global majors at a time when their resources are getting depleted.

Although the country has repeatedly slashed its ambitious production targets it still plans to more that double its output over the next decade which would allow it to become the world's No.3 producer after Russia and Saudi Arabia.

Baghdad has said any oil deals signed with the Kurdish Regional Government (KRG) are illegal.

"Exxon's interests in Iraq are large and not to be compared with what was announced from small blocks in the region," Iraqi Oil Minister Abdul-Kareem Luaibi said last week.

Exxon, with Royal Dutch Shell, has a multi-billion dollar contract with Iraq's oil ministry to develop the 8.7 billion barrel West Qurna Phase One oilfield in the south, one of many large contracts Iraq hopes will help rebuild its crude industry.

OPEC member Iraq has signed scores of deals with foreign oil explorers to develop its oilfields as it recovers from years of war and sanctions more than eight years after the U.S. invasion that toppled Saddam Hussein.

But oil majors have until now stayed away from the northern Kurdish region because of the ongoing dispute with Baghdad over who controls disputed territories and the region's oil resources.

Industry sources have said Shell as well as U.S. oil major Chevron and Italy's Eni have all considered signing similar deals with Kurdistan but changed their mind at the last minute fearing sanctions from Baghdad. (Writing by Dmitry Zhdannikov; editing by James Jukwey)