Exxon May Heighten Ethnic Tension and Share Prices

Exxon Mobil (NYSE:XOM) struck a deal on October 18th for 6 exploration blocks in the semiautonomous Kurdish region of northern Iraq. The move made Exxon Mobil (NYSE:XOM) the first major international oil company to enter a contract in Kurdistan. However, a dispute over resources may ensue.

Exxon Mobil (NYSE:XOM) is also contracted to lead a consortium that will develop a large oil field in Iraq, outside of Basra. The oil field outside of Basra is expected to produce two million barrels of oil a day—more than the U.S. produces in the Gulf of Mexico. The contract in the Kurdish region would allow Exxon (NYSE:XOM) to earn a larger share of revenue, helping to lift share prices.

Iraq’s central government is in opposition to the deal Exxon (NYSE:XOM) made in Kurdistan despite Iraq’s constitution permitting regions to strike their own oil deals. At this point, the government considers regional agreements illegal until revenue-splitting rules are worked out among various regions. Because Exxon went ahead in Kurdistan, Iraq’s central government may exclude Exxon from auction in other areas. It is not clear if the government would also revoke Exxon’s (NYSE:XOM) current contracts.

Professor Michael Klare speculates that Exxon (NYSE:XOM) pushed ahead in Kurdistan because it expects any threats from the central government to be bluffs since Exxon (NYSE:XOM) will be vital in Iraq’s goal to boost oil output. Ethnic tension in the area may be heightened by the contract; but, for now, Exxon’s share price can also expect to be heightened.

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