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Turkey's State Oil Co, ExxonMobil to Develop Oil Projects in Kurdistan

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ISTANBUL - Turkey's state-run oil firm has struck an agreement with U.S. oil giant Exxon Mobil Corp. to develop joint projects in Kurdish-administered northern Iraq, Prime Minister Recep Tayyip Erdogan said Tuesday.

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," he said. "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."

The prime minister's statements, made just before he departed for the U.S. to meet with President Barack Obama, could herald an expansion of Turkey's influence in the energy-rich north of Iraq and help it generate enough energy to meet rising demand amid a robustly growing economy.

But Washington has also been cool on ventures that lack Baghdad's approval, fearing that empowering regional players such as the Kurds and Sunnis may push Iraqi Prime Minister Nouri al-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.

"The U.S. administration has consistently sent the same signals and repeated the same message: 'We want this to be done with Baghdad as part of a win-win-win formula involving Ankara, Erbil and Baghdad.' Obviously, by signing an agreement Turkey and Iraqi Kurds have moved to a certain stage, but whether this happens will depend to a great extent on what happens in Washington," said Bulent Aliriza, director of the Turkey Project at the Center for Strategic & International Studies in Washington.

Exxon Mobil declined to comment on the agreement announced by Turkey's prime minister. The Kurdish regional government couldn't immediately be reached for comment.

"The deal [between Turkey's oil company and Exxon to explore in Iraqi Kurdistan] is illegal and is not in line with the Iraqi constitution. Any agreement signed without the approval of the central government is illegal," said Faisal Abdullah, spokesman for Hussein al-Shahristani, Iraq's deputy prime minister for energy.

Striking an agreement with Ankara offers Iraqi Kurdistan a gateway to export its huge reserves of crude oil directly to world markets via Turkey, after a new pipeline is completed.

The move may also have destabilizing effects, coming at a time when Sunni-Shia tensions in Iraq are mounting and Mr. Maliki is seeking to assert Baghdad's authority across the country.

The Kurdish regional government and the Shia-Arab-led central government dispute control of territory, oilfields and revenue sharing from energy resources in Iraq. A KRG-Turkey deal could also deepen growing rifts between Baghdad and Ankara.

Some analysts said Tuesday's announcement contrasts 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," Mr. Erdogan said. "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," he told reporters in televised comments from Ankara before boarding his jet.

There is a deep divide between Erbil and Baghdad about 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 Mr. Maliki says all new agreements need to be approved by Baghdad.

To get its energy framework with Iraqi Kurdistan moving, Turkey would have to persuade Washington to back the deal, analysts say.

"This is a step with the regional government in northern Iraq for exploration there. Now, to get results from this move, we need to get done with this trip with good results, our steps will mature accordingly," Mr. Erdogan said ahead of his meeting with Mr. Obama.

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

Genel Energy, which is listed in London and has been active in Iraqi Kurdistan since 2002, is already pumping oil and selling mostly to the domestic market. The KRG is using some of Genel's oil in a barter trade with Turkey, which provides the Kurdish government with processed petroleum products such as kerosene and fuel oil.

Hassan Hafidh, Ali Abbas and Tom Fowler contributed to this article.

Copyright (c) 2012 Dow Jones & Company, Inc.

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