Iraq’s Draft Oil Law: The Federal Dimension

By Reidar Visser (http://historiae.org)
6 March 2007

Thanks to blogger Raed Jarrar, what seems to be an authentic version of the Iraqi draft oil and gas law is now publicly available. It is expected that the law will be presented to the Iraqi parliament shortly after the assembly reconvenes later in March.

As far as questions relating to federalism and Iraq’s state structure are concerned, the final version of the law is broadly similar to the third draft that was leaked in January 2007. One of the key features of the law in this regard is the creation of a “federal oil and gas commission”, a name that in some ways may seem a misnomer. Firstly, the commission is not an institution of the federal government as such, but rather a hybrid that combines representatives of the central and provincial levels of government. Secondly, its innocuous-sounding name rather masks the fact that it represents a further stage in the weakening of Iraq’s machinery of central government, as it completely emasculates the existing oil ministry in some key areas of decision-making. The language says it all: the commission “approves”, “decides”, and “changes” such vital instruments as standard oil contracts; the ministry, on the other hand, merely “proposes” policy (or even “submits” it, to the commission), and generally is more concerned with routine “monitoring” and “planning”. The commission is a creative and quite radical solution to the ambiguity of the 2005 Iraqi constitution, which stipulated a shared but undefined process of policy-making in the oil sector: the central government will devise strategy “with” (ma‘a) the regions and the producing governorates.

The rules of representation in the new commission are of critical importance. From the central government, four ministries plus the premier will be included, alongside top officials from relevant government agencies (three are specified) and a further maximum three “oil experts” (whose criteria for appointment are not given). From the provincial level of government, each federal region will be represented by a minister, and each “producing governorate” not belonging to a region will have a representative of its own. The requirement to qualify as a “producing governorate” is an output of no less than 150,000 barrels of oil per day, hence, as of today, only Basra and Kirkuk (Tamim governorate) are entitled to seats on the commission (in addition to Kurdistan which is represented not by virtue of its production but due to its federal status.)

There has been some suggestion that the oil and gas commission will further tilt the balance in Iraqi politics, away from Baghdad and towards enhanced peripheral control. Whilst the enfeeblement of the oil ministry clearly would seem to support that kind of interpretation, the centre–periphery balance of the commission itself should not be seen as a foregone conclusion. As of today, the centre is far stronger than the provinces in terms of numbers of representatives on the commission. It will probably remain so for some time to come, because it may take some years before those existing governorates that are next in line (probably Maysan, Dhi Qar, Wasit and Nineveh) reach the required production targets. Ironically, the much-trumpeted alternative of an “ethnic” federalisation of Iraq into three ethno-sectarian cantons will also leave the centre better represented on the commission, because those federal regions will only have one representative each. Instead, the scenario most likely to cause a shift towards provincial dominance in the oil and gas commission involves the creation of several uni-governorate or small-scale regions, which will obtain representation regardless of oil production levels. Those who think in sectarian terms may come to construe this as an incentive for the Sunnis (who theoretically could achieve at least three seats on the commission in this way); others who are critical of the idea of federalism as such may view the law as a stimulus for a chaotic and uncontrolled rush towards federalism on a small scale. But suggestions that the new oil law automatically introduces caste-like divisions among Iraqi governorates (producing and non-producing areas) are not necessarily valid.

The other important elements of the law affecting centre–periphery relations include the signing of contracts for discovered but undeveloped fields (this is now explicitly delegated to the regional level of government, but apparently is not a prerogative of oil-producing governorates not organised in a region) and a provision for (unspecified) provincial representation on the board of the Iraqi National Oil Company (INOC). Earlier drafts of the law had established a ceiling of a maximum 50 per cent ownership for producing governorates in INOC’s operating subsidiaries; however, in the final draft, this entire issue has apparently been circumvented. Additionally, in this version of the law stipulations for participation in policy-making by provincial authorities are restricted to federally organised regions.

The discrepancies between media accounts of the law and what is actually in it (and how it was made) are quite remarkable. There has been much fanfare about a “decisive deal” on revenue sharing, in a “compromise between Shiites, Sunnis and Kurds”. In actual fact, the law does very little beyond reiterating the constitutional provisions for a “fair” (but undefined) sharing of revenue. That this “fairness” should mean “revenue-sharing among regions and provinces on the basis of population”, as claimed in US Ambassador Zalmay Khalilzad’s 3 March op-ed in The Washington Post, is in fact not reflected in the law itself, but rather something that is expected to be laid down in subsequent and separate legislative acts. Similarly, the claim that the law represents a “historical deal” between three Iraqi ethno-religious communities rather distorts the picture of the negotiations that have taken place over the past months. In reality, the whole process stalled for several months mainly due to Kurdish intransigence over who should have the right to sign contracts for discovered but undeveloped fields.

Another aspect of the strange reporting on the oil law is the Western tendency to view every single aspect of the entire process through sectarian lenses. The BBC, for example, reported on 27 February, “most of the oil-fields are in the Shiite-dominated south, while the best prospects for future drilling are in the Kurdish north ”. This account fails to mention the fact that more than 80 per cent of the oil in the “Shiite-dominated south” is concentrated in one particular area – Basra – whose reserves in turn are many times larger than even the most speculative estimates of future “Kurdish” fields. In other words, none of the politically dominant factions inside the Iraqi government – the Kurds, and the Supreme Council for the Islamic Revolution in Iraq (SCIRI), one of the Shiite parties – actually possesses any significant amount of oil in their core territories (SCIRI being in the opposition in local government in Basra). As for the Sunnis, supposedly “much reassured” by the agreed (but still uncodified) agreement to share revenue, they have actually been quite marginal to the negotiating process. Symptomatically, in a recent New York Times article by James Glanz on how “new oil find in Iraq gives hope to Sunni areas”, the interviewees marshalled to vouch for the new “hopefulness” were not Sunnis, but – predictably perhaps – American soldiers. It was another indication of the way in which sectarian caricatures are being imposed on the Iraq situation: Shiites and Kurds supposedly united internally and with each other in their “oil-rich” regions, with Sunnis desperately searching for ways of getting hold of the oil, as if that constituted their sole concern.

This kind of biased media image of the negotiations has doubtless been a factor in what must be described as an extraordinary negotiation result. Despite their comparatively insignificant oil resources, the Kurds have masterfully been able to achieve all their aims, including the latest change whereby Kurdish contracts already negotiated with foreign companies will be revised to conform to Iraqi laws, but, importantly, will be reviewed not by the federal oil and gas commission (as per the January 2007 third draft) but by a group of “independent” experts which may also include foreigners. Despite its strong negotiating position – at least theoretically speaking – the Iraqi central government seems to have generally acquiesced in Kurdish demands.

It is however conceivable that the oil and gas law will face more opposition inside the Iraqi parliament. And in theory it should be quite possible to add a little bit more balance to the oil law project without derailing it completely. Why, for instance, should non-producing governorates not be entitled to seats on the federal oil and gas commission? After all the oil is owned by the entire Iraqi people. On the other hand, is it really necessary to infect such existing institutions of the central government as the Iraqi National Oil Company with the pie logic in which everything is divided according to a quota system? Certainly some of the provincial concerns could be addressed through “softer” methods, such as the relocation of certain ministry operations out of Baghdad. And finally, why cannot the guarantee about a fair division of revenue according to population be inserted directly into the law? That sort of reassurance may be required if the law is to stand any chance of passing in the Iraqi parliament, where scepticism against the combination of decentralisation, privatisation and foreign investment is likely to run high.

See also Basra Crude: The Great Game of Iraq’s “Southern” Oil