THE BLOG

Erdoğan to Brief Obama on Exxon's Latest Play

16/05/2013 13:03 BST | Updated 15/07/2013 10:12 BST

By: Shwan Zulal

At the airport moment before boarding the plane bound to the US, the Turkish Prime Minister, Recep Tayyip Erdoğan, announced that Turkey has agreed a deal with the Kurdish regional Government (KRG) and Exxonmobil for oil and gas exploration in Kurdistan region of Iraq. The PM only made a brief statement but confirmed months' long speculations about the game changing deal.

2013-05-15-erdoganobama.jpg

The deal could involve more than half a dozen blocks which will be deifying Baghdad and against the wishes of the White House The Obama administration has so far sided with the central Iraqi government and expressed their concerns about a Kurdish -Turkish oil deal. The White House have also warned American oil companies about the dangers of doing business in Kurdistan, which has fallen on deaf ears and the two of largest US oil companies -Exxon and Chevron- have entered into contracts with the KRG.

It is clear that the short statement by Erdoğan was intended to make the Turkish position clear before heading to the US. Turkey has insisted and made it clear on numerous occasions that dealing with Kurdistan region and entering into oil deals are a matter of Turkish national interest.

Among all the other issues which will be discussed in the meeting with Obama, Syria being the main topic, the oil deal with Exxon in Kurdistan will be on top of the list.

While the White House has made its position clear on Iraq and Kurdish oil deals, American oil companies have ignored the warnings. Despite the uncertainty over the export and political wrangling, IOCs have opted to go to Kurdistan region and in the case of Exxon, risking a significant play in the south of the country. It is ironic that a Turkish PM will be briefing the US president about a deal with one of the largest US oil companies in the world and known to be very close to US state department.

The deal has an immense economic and political implication for all the regional players involved and it does even overlaps on the Syrian issue, given Kurds in Syria are going the same way the KRG has and have borders with Turkey as well as having and controlling oil fields in their areas.

The economic benefits for Turkey are very clear as Turkey is largely dependant on energy imports and seeks energy security and diversifications. However the political impact is more subtitle and long lasting.

What the deal means for the Kurdistan region energy industry and the region as a political entity is even more profound. The idea of a Turkish PM going to Washington and vouch for oil deals in Kurdistan region is in itself a big statement. Moreover, when the details are confirmed, it means that Kurdistan region can move from exploration phase into production and export.

The oil companies in Kurdistan have been anxious about the prospect of export while the dispute between Baghdad and Erbil has escalated. Export has been halted and even when they resume, payments were not made by Baghdad.

The lasts deal with Turkey will give KRG the green light to start making plans for export via Turkey to the international markets. Although such export will be vehemently opposed by Baghdad, there is very little Baghdad can do to stop it once agreed with Turkey. The payment mechanism and logistics of export will be challenging but the determination of Erdoğan to go ahead with the deal mean those issues will be ironed out quickly down the line.