Total (NYSE: TOT), the French oil giant, recently bought a 35 percent stake in U.S. oil concern Marathon Oil’s (NYSE: MRO) Harir and Safen blocks in Iraq’s Kurdistan region.
And the purchase has the Iraqi government in Baghdad up in arms.
Baghdad warned on Tuesday that Total faced “severe” consequences for the business deal, which took place without the government’s awareness, says Reuters.
“We will punish companies who sign deals without the approval of the central government and the oil ministry,” said Faisal Abdullah, a spokesman for Iraq’s Deputy Prime Minister for Energy Hussain al-Shahristani.
“Unless Total reviews the deals, it will face severe consequences… Total will be blacklisted for violating Iraqi law,” he said without giving further details.
Kurdistan has extensive oil reserves, and the autonomous region has a tendency to offer highly attractive terms relative to Baghdad. So it is no surprise that Total wanted in on the action.
The company claims that Baghdad was kept in the loop, but that, of course, is not what the Iraqi government is saying.
Total is currently trying to develop its yearly oil production by 2.5 percent, at $100 per barrel, all the way through 2015. But there were several problems earlier this year, causing lower than anticipated output in the second quarter of 2012.
While drilling on the Harir well commenced on Monday, the Safen field won’t see any action until early 2013, according to Marathon statements.
Tensions between Baghdad and Kurdistan often come to a head over foreign oil operations. Total’s biggest challenge will be trying to get the oil from Kurdistan safely out of the region, since Baghdad can block pipeline access to the south.
The Iraqi government has been testy over Kurdistan oil deals in the past; it blacklisted Chevron after a similar deal recently.
Although Baghdad continues to fret and fume, Kurdistan, a small region with its own army and government and which has remained largely aloof from the continuous uprisings and violence across the rest of Iraq, is now rapidly becoming one of the richest areas within the nation.