The oil and gas law is an open crisis between Baghdad and Erbil

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The oil and gas law is an open crisis between Baghdad and Erbil

As the deadline for an agreement between the central government in Baghdad and the Kurdistan Regional Government approaches, disputes are reignited over new details that reveal a lack of desire to reach a final settlement. Each party wants to control the oil and gas file, either under the title of the government’s right or the flexibility of the system of regions.

According to sources within the Iraqi parliament, negotiations between Baghdad and Erbil aimed at issuing a new oil and gas law have once again failed. This has had an impact on the parliamentary Oil and Gas Committee, which has admitted its inability to resolve the contentious issues between the two parties.

The ongoing crisis since 2005 will continue due to differing perspectives on oil and gas revenues between the central and regional governments.

Observers note that there is a disagreement between the central government and the Kurdistan Regional Government regarding the control of revenues generated by natural resources in Iraq. The central government believes that it should have full control over these revenues due to its sovereignty, while the regional government argues that the federal system grants it the right to control the revenues, with some degree of federal supervision.

Zainab Al-Moussawi, who is a member of the Parliamentary Oil and Gas Committee, has stated that the process of enacting the oil and gas law is slow due to contentious issues. The management of the Kurdistan region’s oil fields and the financial revenues generated from selling oil and exporting abroad are the most significant points of contention.

During the conversation, she mentioned that there are two controversial points that indicate that the management of national wealth, including those in Kurdistan, is under the control of the federal government. She further stated that the management of federal financial revenues and the export of Kurdish oil abroad through the National Oil Company (SOMO) are also points of contention, to which Erbil objects.

Al-Moussawi stated that the dialogues between Baghdad and Erbil are ongoing to resolve differences and approve the law that will redraw Iraq’s oil map.

Based on observers’ expectations, it seems that the dialogues available for addressing the issues related to sovereignty over oil revenues, central supervision, and independent rights of regional governments to manage local affairs are only temporary settlements. These dialogues facilitate the distribution of salaries to employees in the region, but don’t address the fundamental issues. It is still unclear whether the federal system grants the regional government independent rights to manage local wealth similar to how it grants them independent rights to manage other local affairs.

In Baghdad, many people believe that allowing Erbil to have control over oil will increase separatist movements and give the Kurdistan Regional Government an unfair advantage in terms of resources. Although several governorates have oil resources, the revenue from these resources is distributed equally among all governorates, which should also include the three governorates in the region.

Officials from the Kurdish region deny that controlling the area’s oil resources implies a renewed push for separation. They argue that the federal system, while granting some rights to the central government, doesn’t grant it all rights as it does currently.

The Iraqi government aims to regulate the oil and gas sector through a single national company, with all imports being deposited in a single account.

In February of last year, the Federal Court in Baghdad issued an order for the region to surrender the oil produced on its lands to the central government in Baghdad. Furthermore, the court also mandated the cancellation of all contracts signed by the region with foreign companies. As a result, the judiciary in Baghdad invalidated contracts with many foreign companies, particularly American and Canadian ones.

In early April, a temporary agreement was signed between Baghdad and Erbil, stating that all oil sales in Kurdistan must be made through the Iraqi Oil Marketing Company (SOMO). Moreover, the revenues generated from the region’s oil fields will be deposited in a bank account that is either approved by the Central Bank of Iraq or is the Central Bank of Iraq itself.

The Kurds deny that controlling the region’s oil resources is a step towards renewed separatism.

Jutiar Adel, the head of the Media and Information Department of the Kurdistan Regional Government, has emphasized that the draft law should be based on the principle of true partnership. The law should also include mechanisms to ensure the optimal utilization of Iraq’s natural resources, and to guarantee the rights of all parties fairly. It is essential to prevent the decline of one party at the expense of another.

The debate between the two parties centers on a single word in Article 112 of the Iraqi Constitution, which was issued in 2005. The article stipulates that the federal government, along with the governments of producing regions and governorates, shall manage the extraction of oil and gas from current fields, and distribute the profits fairly based on population distribution. Additionally, a portion of the profits will be allocated to the areas affected by the previous regime.

As per the decision made by the Kurdistan Region Judicial Council on May 30, 2022, the paragraph only applies to “current” fields, which means that the oil fields in Kurdistan are not included as they were discovered and developed after the paragraph was written. These fields were instead governed by a special law passed by the region’s parliament in 2007. This has led some observers to question whether new oil fields discovered in other regions of Iraq will also be exempt from this article of the constitution.