The sovereignty complex impedes the adoption of the oil and gas law in Iraq
The sovereignty complex impedes the adoption of the oil and gas law in Iraq
10-1-2023
BAGHDAD – Advisor to the Iraqi Prime Minister, Mazhar Salih, said that the oil and gas law, which is still awaiting approval by Parliament, “will spark investments in the energy sector and enhance revenues.”
He stated that the law “will establish a stable national road map for the oil sector, attract investments in oil and gas projects and establish a unified oil policy and a multilateral committee to supervise oil and gas fields, allowing Iraq to benefit from its hydrocarbon potential effectively, including in the Kurdistan region.”
It is expected that the passage of the law will open the way for production-sharing agreements with foreign companies. However, the differences between Baghdad and Erbil still constitute an obstacle to the adoption of the law.
If oil and mineral wealth were divided on the basis of citizenship, the dispute over other details would be merely technical.
Observers say that the essence of the dispute is due to a type of dispute over sovereignty over oil rights, production, and revenues. While Baghdad wants all rights to be vested in the central government, so that the revenues end up in one account subject to the supervision of the central government, the Kurdistan region authorities want to have the right to contract with foreign companies, and for the revenues to go to their own accounts, and not be subject to the Baghdad authorities.
Representative Firas Al-Muslimaoui says, “There is a real will in the House of Representatives to legislate the law,” noting that “Iraq’s oil is one and indivisible, and there is a movement towards achieving justice in the distribution of wealth to the people, whether in the Kurdistan region, the center, or the south.”
While Iraq exports about 3 million barrels of oil per day, the Kurdistan Region was exporting, before the closure of the Ceyhan line in Turkey, about 450 thousand barrels per day.
Mazhar Salih said, “Adopting a unified national oil policy, and achieving optimal investment and production across Iraq’s oil area, starting from the southern fields up to the northern and regional fields, is an important and strategic matter in the matter of taking advantage of opportunity costs in the optimal and harmonious operation of the Iraqi oil policy currently, not to mention Achieving the best financial returns for the country, which we all aspire to, to finance building the Iraqi economy and the basics of sustainable development.”
The draft oil and gas law in Iraq available to Parliament stipulates that responsibility for managing the country’s oil fields must be entrusted to a national oil company, and supervised by a federal council specialized in this subject. While the Kurdistan authorities say that the Iraqi government “has the right to participate in the management of the fields discovered before 2005, but the fields discovered after that belong to the regional government.”
According to the Iraqi News Agency, the consultation committee between the two parties includes “the Minister of Oil, the Minister of Natural Resources in the region, the Director General of SOMO Company, and the advanced staff in the Ministry of Oil, as well as the oil-producing governorates such as Basra, Dhi Qar, Maysan, and Kirkuk.”
Iraqi Prime Minister Muhammad Shiaa Al-Sudani said at the beginning of last August that “the draft oil and gas law is one of the basic and important laws, representing a factor of strength and unity for Iraq, and it has been stuck for years, at a time when the country today is in dire need of its legislation and to benefit from this natural wealth.” In all fields and sectors, in addition to the contribution of the legislation to solving many outstanding problems.”
The political system based on the rule of sectarian quotas is the main source of conflict. Observers say that if oil and mineral wealth were divided on the basis of citizenship, such that rights to revenues were shared on the basis of population size, the dispute over other details would only be technical. While it is now a dispute between two parties, each of which wants to dictate its sovereignty. The central government is based on the fact that it is a government for all of Iraq, while the Kurdistan Regional Government is based on the fact that the federal system allows it to control the region’s oil revenues. This constituted the subject of a legal and political dispute at the same time.
In February 2022, the Federal Court in Baghdad issued an order obligating the region to deliver oil produced on its lands to Baghdad, and to cancel contracts the region signed with foreign companies. The decision also invalidated contracts signed between the regional authorities and a number of foreign companies.
Observers say that the issue for the ruling parties in Baghdad is not limited to sovereign motives, but includes motives related to Iran’s reservations that the region should have its own source of funding and not be subject to the supervision of the central authority, which constitutes a material basis for secessionist motives.
Following debates accompanied by the need to approve the general budget for three years, a temporary agreement was reached between Baghdad and Erbil at the beginning of last April, according to which Kurdistan oil sales would be carried out through the Iraqi Oil Marketing Company “SOMO”, while the revenues generated from the region’s fields would be deposited in an account. A banker with the Central Bank of Iraq or one of the banks approved by the Central Bank of Iraq.
The matter is also not without internal Kurdish conflict, as the Patriotic Union of Kurdistan Party, led by Bafel Talabani, wants the share of Sulaymaniyah Governorate, which constitutes its main base, to be protected and guaranteed by the central government, and not to remain subject to the wishes of the regional government in Erbil, which is controlled by the Democratic Party. Kurdistan Region led by Masoud Barzani.
The Baghdad government fears that granting broad powers to the regional government could ultimately incite local authorities in oil-producing governorates, such as Kirkuk and Basra, to possess investment, extraction, and marketing powers similar to what the regional government demands. Since “federal Iraq” takes into account sectarian divisions, and grants the Kurds broad administrative rights, the Sunni-dominated governorates, as well as the Shiite-dominated governorates, will have reason to aspire to also be a region enjoying the same rights.
The draft law consists of 53 articles, requiring the establishment of the Federal Petroleum Council, which is headed by the Prime Minister and includes ministers and representatives from the governorates. It is responsible for setting petroleum policies, issuing instructions for implementing contracts, approving exploration, development and production, and approving concluded contracts. The contracts must be signed by the Federal Ministry of Oil and approved by the Federal Oil Council within three months.
The draft oil and gas law available to Parliament stipulates that responsibility for managing the country’s oil fields should be entrusted to a national oil company.
Some experts in oil affairs say, “If the law is passed in its current form, this will necessarily mean reducing treasury revenues, as every governorate will want to follow Erbil’s example that ownership of oil discoveries, after 2005, belongs to it, and a percentage of it is supplied to the treasury.”
The regional government resorts to a maneuver through which it attempts to restore the lost “sovereignty,” by requesting that the investment, extraction, and marketing powers that are decided within the competent “Federal Council” be based on consensus between the two parties. This may constitute a future complex that makes investment decisions in Basra fields conditional on the approval of the regional authorities, just as investment decisions in Kurdistan rights are conditional on the approval of Baghdad.
Representative Al-Muslimaoui said it was likely that the draft oil and gas law would be completed during “the current legislative term,” and he expected it to be approved in “the next legislative term after about four months.”
However, Al-Muslimaoui is one of the majority representatives in Parliament who believe that “Iraq’s oil is one, and its administration must be one.” But this belief lacks the vision that the sectarian quota system is what makes Iraq’s oil not one. Instead of its revenues being divided on the basis of citizenship and population, it has become natural for the Kurds to view their oil as their oil, and for the Sunnis and Shiites to view this precedent as an encouragement to have the resources of their provinces as their own as well.
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