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

Advisor to the Iraqi Prime Minister, Mazhar Salih, stated that the pending oil and gas law will attract investment and increase revenue.

In his statement, he mentioned that the new law will create a consistent plan for the oil industry in the country, encouraging investments in oil and gas projects. It will also establish a single oil policy and a committee to oversee oil and gas fields. This will enable Iraq to make the most of its hydrocarbon resources, including those in the Kurdistan region.

It is expected that passing the law will enable production-sharing agreements with foreign companies. However, differences between Baghdad and Erbil remain an obstacle to its adoption.

If natural resources were distributed based on citizenship, technical disputes would remain.

Experts believe that the dispute between Baghdad and the Kurdistan region is primarily related to sovereignty over oil rights, production, and revenues. The central government of Baghdad is pushing for all rights to be owned by them, which would result in the revenues being deposited into a single account under the supervision of the central government. On the other hand, the Kurdistan region authorities want to have the freedom to contract with foreign companies and retain the right to deposit the revenues into their own accounts, thereby not making them subject to the supervision of Baghdad authorities.

According to Representative Firas Al-Muslimaoui, there is a strong desire within the House of Representatives to pass legislation. He emphasizes that Iraq’s oil is unified and there are ongoing efforts to ensure equitable distribution of wealth to the people, regardless of their region – be it Kurdistan, the central region, or the southern region.

Before the closure of the Ceyhan line in Turkey, the Kurdistan Region exported approximately 450,000 barrels of oil per day, while Iraq’s daily export was around 3 million barrels.

Mazhar Salih emphasized the importance of adopting a unified national oil policy and achieving optimal investment and production across Iraq’s oil fields. This includes both the southern and northern regions, as well as other regional fields. By doing so, Iraq can take advantage of opportunity costs and operate its oil policy in a more harmonious and effective manner. This will lead to better financial returns for the country, thus enabling it to finance various developmental projects and build a sustainable economy for the future.

The proposed oil and gas law in Iraq, which is currently under review by the Parliament, includes a provision that mandates a national oil company to manage the country’s oil fields. This management must be supervised by a specialized federal council. According to the Kurdistan authorities, the Iraqi government has the right to participate in the management of oil fields discovered before 2005, but any fields discovered after that date belong to the regional government.

As per the Iraqi News Agency, the consultation committee comprises 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. It also includes the governorates that produce oil such as Basra, Dhi Qar, Maysan, and Kirkuk.

Iraqi Prime Minister Muhammad Shiaa Al-Sudani emphasized the significance of the oil and gas law at the beginning of August. He stated that the law is crucial to Iraq’s strength and unity, and has been pending for years. It is urgently needed to capitalize on the country’s natural wealth and address many outstanding issues across different sectors.

The political system in Iraq, which is based on the rule of sectarian quotas, is the main cause of conflict in the country. Experts suggest that if the oil and mineral wealth were divided based on citizenship, with rights to revenues shared on the basis of population size, the dispute over other details would only be a technical matter. The current dispute is between two parties, each of which wants to control its sovereignty. The central government claims to represent all of Iraq, while the Kurdistan Regional Government argues that the federal system allows it to control the region’s oil revenues. This situation has led to a legal and political dispute.

In February 2022, the Federal Court in Baghdad ordered the region to deliver oil produced within its jurisdiction to Baghdad. Additionally, it nullified contracts signed between regional authorities and foreign companies and instructed them to cancel such agreements.

According to observers, the problem facing the ruling parties in Baghdad goes beyond sovereignty issues. It also includes Iran’s concerns that the region should have its own funding source and not be under the supervision of the central authority. This provides a basis for separatist motives.

After lengthy discussions and the need to approve the general budget for three years, a temporary agreement was reached between Baghdad and Erbil in early April. The agreement stated that Kurdistan oil sales would be conducted through the Iraqi Oil Marketing Company (SOMO) and the generated revenues from the region’s fields would be deposited into an account at a bank approved by the Central Bank of Iraq.

The issue at hand is not only about external factors, but also involves internal conflicts within the Kurdish community. The Patriotic Union of Kurdistan Party, led by Bafel Talabani, is advocating for the protection and guarantee of the share of Sulaymaniyah Governorate. This region constitutes their main base and they want it to be safeguarded by the central government. They do not want it to remain subject to the wishes of the regional government in Erbil, which is controlled by the Democratic Party of Kurdistan Region led by Masoud Barzani.

The government in Baghdad is concerned that giving extensive powers to regional authorities could potentially encourage local authorities in oil-producing provinces like Kirkuk and Basra to gain control over investment, extraction, and marketing rights similar to what the regional government is requesting. As “federal Iraq” takes into account sectarian divisions and provides the Kurds with broad administrative powers, the governorates dominated by Sunni and Shiite populations will also aspire to have the same rights as a region.

The proposed legislation comprises 53 articles that mandate the establishment of the Federal Petroleum Council. The Council will be chaired by the Prime Minister and consist of ministers and representatives from the governorates. The Council is tasked with formulating petroleum policies, issuing guidelines for implementing contracts, approving exploration, development and production, as well as sanctioning completed contracts. All agreements must be signed by the Federal Ministry of Oil and endorsed by the Federal Oil Council within three months.

The proposed oil and gas law before Parliament requires a national oil company to oversee oil field management.

Some experts in the oil industry have expressed concerns over the proposed law, stating that if it is passed in its current form, it will result in reduced treasury revenues. This is because every governorate will want to assert ownership over oil discoveries made after 2005, similar to the example set by Erbil, and supply only a percentage of it to the treasury.

The regional government is trying to restore its lost power by proposing that investment, extraction, and marketing decisions related to Basra fields should be based on consensus between the two parties. This can create a complicated situation where investment decisions in the Basra fields would be subject to approval by the regional authorities, while investment decisions related to Kurdistan rights would require approval from Baghdad. The ultimate goal is to regain control over the decision-making process and restore the lost sovereignty.

Representative Al-Muslimaoui said he expects the draft oil and gas law to be completed and approved within four months.

Al-Muslimaoui is one of the majority representatives in Parliament who believe that Iraq’s oil should be managed by a single administration. However, this belief fails to take into account the fact that the sectarian quota system is the root cause of the problem, which prevents Iraq’s oil from being managed as a single entity. The current system divides the oil revenues based on citizenship and population, making it natural for the Kurds to consider their oil as their own, and for the Sunnis and Shiites to follow suit by considering the resources of their respective provinces as their own.