Kurdistan, on the other hand, has done everything it can to woo the oil companies. The regional capital of Erbil has the feel of an oil boom town, where luxury hotels are opening up one after another, and real-estate speculators are flipping cookie-cutter houses for ballooning prices. At the heart of this exuberance is Kurdistan's minister of natural resources, Ashti Hawrami, whose development strategy has centered on oil contracts that promise generous rates of return, padded to offset the political risk that comes with the territory.
That risk is substantial. Not only does Baghdad consider the Kurdish deals illegal, but it also controls the country's network of export pipelines. As of now, Kurdistan's oil producers have made most of their money by selling crude at roughly half price to domestic refiners within the region. They have intermittently exported through Baghdad's pipelines, but have only been paid for a fraction of that output. Nobody is quite sure how -- or whether -- the central and regional governments will create a durable enough arrangement to support the kind of large-scale exports that Exxon and Chevron will need.
For the moment, Hawrami's promises are enough to reassure investors. He speaks of raising Kurdistan's production capacity by a factor of 10 this decade, to more than 2 million barrels per day. On its face, the proposition is absurd: What company would spend hundreds of millions of dollars to drill for oil without a plan for how to sell it? But in the magical thinking that sometimes animates bullish capitalists, the traditional logic has been reversed.
"The scale of the opportunity for Kurdistan and for Iraq is so large that there will be a resolution," said Tony Hayward, the former CEO of BP, who is now running a small Anglo-Turkish company invested in Kurdistan called Genel Energy, in an interview with Reuters. Hayward has often contended that oil and money, if gathered in sufficient quantities, are subject to a kind of natural law of international financial osmosis: "Over the next year or two, Kurdistan production capacity will grow towards 1 million barrels a day -- that's too much oil to be shut in as a consequence of a political dispute. So one way or another, it's going to get resolved."
Call it the Field of Dreams theory of oil dispute resolution -- "if you drill it, they will come around" -- yet the premise gained mainstream credibility the moment Exxon signed with Kurdistan. Initially, only no-name companies had bought Hawrami's pitch. Now, the world's most profitable company had gone in. With Exxon's imprimatur, Hawrami kicked off what he triumphantly dubbed "a season of mergers and acquisitions." Total, Gazprom, and Chevron all signed deals in a span of two weeks in July.
Kurdistan's investment bonanza stood in flattering contrast to Baghdad's anemic attempt to attract similar enthusiasm. In May 2012, the Oil Ministry again gathered international oil executives in its auditorium for another game show-style auction. This time, Iraq was offering 12 new exploration blocks. Some of the same companies that had attended the earlier auctions were there, but many of the largest were absent. After each block was opened for bidding, a period of awkward silence ensued. The participants had 15 minutes to drop their envelopes into the clear plastic box, but two thirds of the blocks didn't receive any bids. The silence was filled mainly by the theme song from "The Godfather," which the ministry had inexplicably chosen for the soundtrack of the proceedings. At the end of the event, they played a nationalist song called "A Victory to Baghdad," but the lyrics rang hollow.
"I believe the Iraqis have to reconsider the terms in order to attract other people," said Sara Akbar, the CEO of Kuwait Energy, in an interview with Iraq Oil Report. "For these terms, [many blocks] cannot be developed."
As the oil companies migrate north, political clout is moving with them. The British government just announced it is closing its consulate in Basra, partially to shift resources to Erbil. More importantly, Kurdistan is enjoying a renaissance in its relations with Turkey. Historically the Turkish government has been wary of supporting Kurdish autonomy in Iraq, for fear of emboldening its own Kurdish minority to expect similar levels of independence. Yet a series of regional dynamics has been pushing the two sides closer together: the civil war in Syria, Maliki's worrisome alignment with Iran, and Turkey's booming economy, which is ever more hungry for energy. On all three counts, the Iraqi Kurds could be valuable allies.
Against this backdrop, the Turkish government has provisionally approved the construction of oil and gas pipelines to the Kurdish border. Such infrastructure would be transformational for Iraq and the region. It would bring Kurdistan to the brink of economic self-sufficiency; that, in turn, would threaten to sever the ties of financial reliance on Baghdad that have kept Kurdistan from declaring itself an independent state.
All of this has made Maliki both angry and anxious. Kurdistan's potential secession is only part of the problem. The larger issue is the federalist precedent that Kurdistan is setting. Other provinces have enviously noticed the Kurds' success, and want to emulate it. Populist politicians in provincial governments around Iraq -- even many whose parties are formally aligned with Maliki -- have taken to advocating for greater autonomy within a loose, federal system. If such a movement were to gain traction in a key province like Basra, the source of 70 percent of Iraq's oil production, it could undermine the power of the central government.
The push for regional autonomy has been relatively mild so far outside of Kurdistan, largely because Maliki retains so much power as the commander of the armed forces. Yet the federalist movement also reflects the fears expressed by Tariq Shafiq in 2006: Iraq is a country competing with itself to win foreign investment, haunted by the prospect that its internal conflicts will combust into violence and even war. Many of Baghdad's critics in Kurdistan and within oil companies blame the government for being too stingy and controlling. They may be right -- but those are only symptoms of a deeper political dysfunction in which the Kurds and the companies are fully complicit.
From the Kurdish point of view, of course, the picture is quite different. A long-oppressed minority group has used the competitive dynamics of global capitalism to win an unprecedented level of control over its own fate. They have leveraged the full might of the private sector. Or, as the Kurdistan region's President Massoud Barzani once put it: "If ExxonMobil came, it would be equivalent to 10 American military divisions.... They will defend the area if their interests are there."
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