How Exxon helped make Iraqi Kurdistan

How Exxon helped make Iraqi Kurdistan
A worker adjusts the valve of an oil pipe at West Qurna oilfield in Iraq's southern province of Basra in this November 28, 2010 file photo.

LONDON/ARBIL - In January 2011, Exxon hired one of the best connected men in Iraq: Ali Khedery, an American of Iraqi descent who had served in Baghdad as a special assistant to five US ambassadors and a senior adviser to three US generals.

At a meeting with Exxon a few months later to analyze Iraq's future, Khedery laid out his thoughts.

Iraq under Prime Minister Nouri al-Maliki was moving toward dictatorship and civil war, he said he told the session. "We will see a rise in violence and a total paralysis in Baghdad," he recalled saying. Iraq was likely to align itself more closely with Iran, which will "have an adverse impact on US companies."

The gloomy scenario grabbed the attention of Exxon executives. Just two years earlier, they had signed a $25 billion deal with Iraq to develop West Qurna, one of the largest oil fields in the country.

"No one wanted to hear that they had negotiated a multi-billion dollar deal in a country which will soon implode," said Khedery, who has detailed to Reuters the meeting and subsequent events for the first time.

He suggested an alternative: Kurdistan, a semi-autonomous region in northern Iraq that was politically stable, far from the chaos in the south, and had, by some estimates, oil reserves of 45 billion barrels.

Less than a year later, Exxon signed a deal with Kurdistan. The story of how that happened explains much about the would-be nation's growing power.

Interviews with key players in the secret 2011 negotiations - the talks involved not just Exxon but also fellow Western oil giant Royal Dutch Shell - show how Exxon's decision to invest infuriated both Washington and Baghdad, and helped propel Kurdistan closer to its long-held goal of independence.

Kurds like to say they are the world's largest ethnic group without a state. Numbering some 35 million, they inhabit a band that stretches from Syria across southern Turkey and northern Iraq and into Iran. Most follow Sunni Islam and speak their own distinct languages.

The Exxon deal fueled Kurdish self-belief. The presence of the biggest US oil company has helped not just financially but also politically and even psychologically.

"Part of the process of building our region has to do, of course, with dealing with oil, signing contracts, negotiations with various countries," Fuad Hussein, chief of staff to Kurdistan's president, told Reuters. The Exxon deal validated smaller oil deals Kurdistan had already signed and was "a big victory for us."

Exxon declined to comment.

Despite the deal, Kurdistan's path to nationhood is far from certain. Independence is opposed by Washington, Baghdad, neighboring Turkey and Iran. It also remains unclear whether the Kurds have the strength to stand alone in this volatile region. As militant group Islamic State (IS) advanced through Iraq this summer, Baghdad's troops melted away, leaving the Kurdish fighters known as peshmerga to halt the extremists. When IS threatened to take Arbil, Iraqi Kurdistan's capital, the United States bailed out the Kurds with a bombing campaign. On Tuesday, a temporary agreement between Baghdad and Arbil to end their dispute over oil exports and budget payments looked, at first glance, like Kurdistan returning to the Iraqi capital's control.

But the deal does nothing to resolve the issues between Arbil and Baghdad, while forcing the Iraqi capital to effectively acknowledge Arbil's development of its energy resources with Exxon, other foreign companies and Turkey. Arbil has compromised, but it has also locked in the progress of the past three years.

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