No Contract Freeze for ‘Committed’ Exxon, Kurdish Minister Says

Exxon Mobil Corp. (XOM) is honoring its oil exploration contracts in the semi-autonomous Kurdistan region of northern Iraq, the Kurdish minister for natural resources said in disputing a report from Iraq’s government.

Exxon Mobil, the world’s largest energy company, hasn’t halted the agreements in Kurdistan, Ashti Hawrami, the natural resources minister, said yesterday in an interview in Washington. Iraq’s oil minister said Exxon Mobil confirmed in a letter April 1 that it has frozen its contracts with Kurdistan.

“What comes out of Baghdad is about 90 percent, with respect, rubbish,” Hawrami said yesterday. The regional government hears from Exxon Mobil on an “almost daily basis,” as the Irving, Texas-based company is “committed” to all its contracts in the region, he said.

Tension between Iraq’s government and Kurdistan’s leadership is mounting as the U.S. seeks to encourage a unified Iraq after withdrawing troops at the end of December. Hawrami is part of a delegation to the U.S. led by Kurdistan President Massoud Barzani, who is scheduled to meet with Vice President Joe Biden this week.

Alan Jeffers, an Exxon Mobil spokesman, said the company didn’t have any comment regarding contracts in Kurdistan. The government in Baghdad refuses to do business with companies working in the Kurdish region.

Halted Exports

Relations between the Kurds and Iraq’s government soured April 1 when the Kurdistan Regional Government, which exports crude using a pipeline controlled by Iraq, stopped deliveries. The Kurdish Ministry of Natural Resources said Iraq failed to pay about $1.5 billion owed to oil producers since May 2011.

A dispute over oil revenues between Iraq’s government and Kurdish authorities led to a yearlong halt in exports from the region that ended in February 2011.

Iraq holds the world’s fifth-biggest reserves of crude, based on statistics from London-based BP Plc (BP/), and it is seeking to boost shipments to rebuild an economy recovering after years of conflict.

“It’s a loss for Iraq if they continue with this madness of this policy,” Hawrami said in the interview. “It has to be resolved in a few weeks and months ahead.”

He said the Kurds will resume the shipments when they get “clear understanding” that Iraq will pay for the oil.

The Kurdish region is producing about 100,000 barrels of oil a day after cutting off the shipments, with most of the product refined and consumed locally, Hawrami said.

Trucked Through Iraq

Some refined product is trucked through neighboring Iran because there aren’t other routes “at the moment,” Hawrami said. Iran is used only for transit and the government doesn’t sell to Iran, he said. It’s unclear whether the shipments to Iran’s ports breach economic and financial sanctions imposed by the U.S. and European allies.

Iraq asked Iran and Turkey to curb oil smuggling from Kurdistan across their territories, Iraqi Oil Minister Abdul Kareem al-Luaibi told a news conference yesterday in Baghdad.

Most of the crude smuggled by tanker from Kurdistan is sold at lower prices to other nations at Iran’s port of Bandar Abbas, he said. “We have indications and detailed reports with numbers about crude smuggling to Iran,” Luaibi said.

Iraq only exports crude through government terminals and “doesn’t know where the money from the oil smuggling in Kurdistan is going,” he said. Kurdistan produced 68.11 million barrels of oil last year, of which 33.64 million weren’t shipped via official channels, Luaibi said.

Iraq’s crude exports in March rose to 71.83 million barrels, or 2.32 million a day, the most since 1980, Asim Jihad, a spokesman for the Iraq Oil Ministry, said. The exports generated $8.475 billion, with an average price of $118 a barrel, he said.

Hawrami said the regional government is “not in the business” of breaking any laws.

The Kurdistan government is seeking contractors to build a crude-oil pipeline from Kurdistan through Turkey, Hawrami said. Construction would start this year and be complete by late 2013, he said.

To contact the reporters on this story: Roxana Tiron in Washington at rtiron@bloomberg.net; Katarzyna Klimasinska in Washington at kklimasinska@bloomberg.net

To contact the editors responsible for this story: John Walcott at jwalcott9@bloomberg.net; Steve Geimann at sgeimann@bloomberg.net

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