Seattle Times : Iraq's oil: the plot thickens

Iraq's oil: the plot thickens

By Jim Landers | The Dallas Morning News | October 30, 2007

ASSYAN, Iraq -- Jebel Semroot is a dusty heap of rocks plowed and grazed by tough farmers and tougher goats. But this hill surrounding the village of Assyan, where Dallas-based Hunt Oil Co. hopes to drill next year, could have hundreds of millions of barrels of oil trapped beneath it.

Chief Executive Ray Hunt flew to Iraq in September to sign an exploration agreement covering Jebel Semroot with Iraq's Kurdistan Regional Government.

Trouble is, Jebel Semroot isn't in Kurdish territory. If Hunt Oil drills in these rocks, the company will be helping the Kurds absorb lands in Nineveh province that were historically Kurdish but are still claimed by Iraq's Arab Sunnis.

The deal has already drawn a warning from a group of Sunni clerics who sympathize with insurgents battling U.S. and Iraqi forces.

"Those involved in such contracts will pay the price sooner or later," warned the Association of Muslim Scholars.

While reining in their ambitions just short of independence, the Kurds are moving to expand their territory, take charge of their oil and insulate themselves in a hostile neighborhood. They are looking to Hunt Oil and other investors to help them get free of the violence and political paralysis of Baghdad. And they want to do it before U.S. troops leave Iraq.

Kurdish leaders are pushing before year's end to add the oil-rich city of Kirkuk and other disputed regions like northern Nineveh to the three provinces of the Kurdistan Regional Government in the essentially autonomous region.

They lobbied successfully for a U.S. Senate resolution in October that says Iraq's regions should be self-governing, with Baghdad in charge of little more than foreign policy and national security.

They are wooing foreign businesses with tax holidays and other incentives. They have attracted oil companies from France, Norway, Turkey and Canada with exploration deals worth more than $500 million.

And they've granted an oil concession to Hunt Oil, a U.S. company close to the White House, in territory that is not officially theirs.

Kurdish leaders say they realize that independence would fracture Iraq and alarm neighboring countries. They say autonomy, however, could point the way to a "soft partition" of Iraq that would give each of the country's three main ethnic groups (Kurds, Arab Sunnis and Shiites) enough self-determination to live together without civil war.

Baghdad and the Bush administration prefer a stronger central government. State Department officials say the Hunt deal faces legal uncertainties over whether regional or national oil legislation should prevail -- even though a national oil law has yet to be enacted.

The officials also say the deal could undermine the Iraqi government and possibly provoke more violence over the loss of oil-rich territories that Arab Sunnis regard as theirs. Another fear among U.S. analysts is that autonomy among Iraq's main ethnic and religious groups would lead to an oil-rich Shiite state in the south that would become a satellite of Iran.

Many, including officials with other oil companies in Iraq, find it hard to believe that President Bush and Ray Hunt, a longtime supporter, did not talk about this deal before it was signed, or that the Kurdistan Regional Government chose to award a concession to the U.S. company without paying much attention to its political connections with the White House.

Hunt is a member of the President's Foreign Intelligence Advisory Board.

Bush said at a news conference that the Hunt Oil deal in Iraq was a complete surprise. Hunt said he has not talked about it with Bush or anyone else in the U.S. government, either before it was signed Sept. 8 or since.

Hunt said he could not discuss the work of the Foreign Intelligence Advisory Board, adding that the information used by the company in deciding to explore for oil in Iraq was "100 percent in the public domain."

Companies helping the Kurds look for oil will now play an important role in Kurdish foreign policy. They could win the Kurds allies in getting their oil out to world markets. They could also gain protection for the Kurds from neighbors like Turkey angered by Kurdish guerrillas and Kurdish steps toward economic and political independence.

"If people want Iraq to stay united, this is the way to go," said Falah Bashir, director of foreign relations with the Kurdistan Regional Government. "We need an opportunity to open up to the outside world, not to have all the power in Baghdad."

Iraqi Oil Minister Hussain al-Shahristani has called the Hunt Oil contract "illegal" and said any oil found in such deals could not be exported. He has championed a dominant role in the development of Iraq's oil reserves for the national oil company, with foreign companies kept on the periphery.

Iraq has more oil than all but two or three other countries in the world. The three provinces that make up the Kurdistan Regional Government, however, have only about 1 percent of the country's proven reserves. If the Kurds can add the super-giant Kirkuk field and other prospective areas like Jebel Semroot, Kurdistan could start to look like Libya, Nigeria or even Russia.

Other companies drilling for oil in Kurdish provinces have already found healthy fields. DNO, a Norwegian company, has developed a field called Tawke in far northern Iraq near the borders of Turkey and Syria that Ashti Hawrami, Kurdistan's minister of natural resources, estimates could produce 50,000 barrels a day next year.

A larger field called Taq Taq -- jointly owned by Genel Enerji of Turkey and Addax Petroleum International of Canada -- contains 2 billion barrels of high-quality oil and might produce as much as 330,000 barrels a day by the end of 2008.

The Taq Taq field was initially discovered when Saddam Hussein was in power. As his forces retreated from the region under the U.S. no-fly zone, they seeded the area with land mines to keep the Kurds from developing it.

The Taq Taq and Tawke fields are both within the three Kurdish provinces that constitute the Kurdish Regional Government.

The 800-square-kilometer Hunt Oil exploration block is another matter.

Saddam kicked the Kurdish farmers and herders of Assyan off Jebel Semroot in the 1970s and 1980s as part of his Arabization campaign.

When Saddam's forces retreated to the south, Assyan's former residents moved back. Jebel Semroot was on the Green Line separating Kurdish and Iraqi forces, and parts of the hill are still covered in landmines, Assyan residents say.

It's not the first time that Hunt Oil has faced competing sovereignty claims in the Middle East. The company discovered oil in Yemen in 1985 after signing an exploration contract with the government of Yemen. But then Ray Hunt received a letter from Saudi Arabia claiming that the discovery had been made on land controlled by Saudi Arabia. Hunt Oil ultimately prevailed and the discovery was acknowledged to be in Yemen.

Hunt said he went to Baghdad on two or three occasions during Saddam's rule to look into exploration deals there. All of Hunt's visits to Iraq occurred during the time that Iraq was at war with Iran and when U.S. policy tilted toward Iraq to keep Iran from winning. Hunt said the discussions abruptly stopped when Saddam invaded Kuwait in 1990.

The Kurds have waited years for a new federal oil law. Hawrami sees a power play under way by the federal Oil Ministry, which has tried to monopolize Iraq's oil industry for the Iraqi National Oil Company and exclude foreign oil companies from production-sharing agreements.

As drafts of the agreed compromise legislation changed under the Oil Ministry's influence, the Kurds began writing their own oil legislation, which was approved by the Kurdistan National Assembly in August.

Hawrami said the Kurdish law recognizes the revenue-sharing arrangement between Kurdistan and Baghdad, which gives 17 percent of national oil revenues to Kurdistan and the rest to Baghdad to be divided as other Iraqi politicians see fit.

Getting the oil from Kurdistan to world markets won't be easy. Two pipelines connect the giant Kirkuk field with Turkey's large Ceyhan oil terminal on the Mediterranean Sea. The lines have the capacity to export 1.6 million barrels of oil a day, but hundreds of sabotage attacks by Iraqi insurgents have stopped flows for most of the past four years.

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