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Oil law deal unlikely this year
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Then-Deputy Prime Minister Barham Salih (L) talks with Iraqi Prime Minister Nouri al-Maliki during a national assembly meeting May 20, 2006 in Baghdad. (CEERWAN AZIZ/Getty Images)
By Ben Van Heuvelen of Iraq Oil Report
Published December 16, 2011
BAGHDAD - Bullish investors who converged on the Kurdish capital of Erbil last month for an oil and gas conference heard optimistic words from political leaders, who expressed confidence that a new negotiating framework would produce long-delayed oil legislation by the end of the year.
One month later, that process has gone nowhere.
Kurdistan's Minster of Natural Resources Ashti Hawrami said he would sit down with Oil Minister Abdul Karim Luaibi, one on one, and create a new draft based on a version of the legislation that passed the Cabinet in 2007.
Not only have the two men failed to meet, but Deputy Prime Minister for Energy Hussain al-Shahristani said the Cabinet would not consider going back to the 2007 version.
"The only decision that was made by the Council of Ministers (Cabinet) was the draft that was presented a few months ago," Shahristani told Iraq Oil Report during a Thursday interview in his office. "And as far as the government – the Council of Ministers – is concerned, that's the only draft that is on the table for discussion."
Investors in both southern Iraq and the semi-autonomous Kurdistan region regard federal oil legislation as a key measure to ensure the long-term viability of capital-intensive projects. Without a solid legal foundation, they say, contracts are vulnerable to the changing winds of politics. And when the U.S. government has issued warnings against signing oil deals with the KRG, it has pointed to the legal uncertainty inherent in those contracts.
Indeed, both Baghdad and the Kurdistan Regional Government (KRG) have struck oil and gas deals based on diverging interpretations of the Constitution and Iraqi law. As a result, Iraq effectively has two competing oil sectors.
That rivalry came into stark relief in November when the KRG revealed it had signed contracts with ExxonMobil for six exploration blocks, in defiance of a Baghdad policy banning any of its contractors from oil deals in Kurdistan.
ExxonMobil is developing the West Qurna 1 oil field in Basra, which is currently producing about 350,000 barrels per day (bpd) – more than twice Kurdistan's entire output. That project is now in jeopardy, as Baghdad continues to maintain that Exxon cannot move forward in the KRG and keep working in Basra.
The Constitution does not definitively outline state powers over the oil sector, instead calling on Parliament to pass a modern oil law. Such legislation could serve to clarify key questions of contracting and management authority and revenue sharing, but political disputes – largely between Baghdad and the KRG – have so far derailed all legislative attempts.
One of the more promising political developments to date came on Oct. 27, when Prime Minister Nouri al-Malki and KRG Prime Minister Barham Salih met in Baghdad to discuss a path towards resolving several key issues between the two governments, including oil legislation and territorial disputes.
In a Nov. 15 interview with Iraq Oil Report, Hawrami said that he and Luaibi would meet by the end of the month, consistent with Maliki and Salih's agreement, and work off of the 2007 draft oil law.
At the same time, however, the KRG had just announced its deals with Exxon.
Since then, Luaibi and Hawrami have not met; moreover, Shahristani has suggested that no new oil law negotiation agreement ever existed.
"I have heard different versions of that story. I have heard what Mr. Barham Salih said, and I have heard what other participants in that (October) meeting have said. And it's not – I mean, the two stories are not identical," Shahristani said.
Asserting his authority as the head of the Cabinet's energy portfolio, Shahristani also appeared to suggest that no such agreement could be valid without the entire Cabinet's sign-off.
"Even if there was such an agreement, we have in Iraq… a state (composed) of laws, and the decisions have to be made by the Council of Ministers," he said.
Oil legislation rose to the top of the political agenda last summer, after a four-year pause.
Both the federal Oil Ministry and the Parliament's oil and energy committee, led by Adnan al-Janabi, drafted competing versions of an oil law. The Cabinet approved the Oil Ministry's version, which concentrated authority in the central government, while the Parliament version, which won support from the Kurds, outlined more powers for provinces and regions.
The Cabinet claimed that its version was the only legitimate draft, echoing a 2010 decision by Iraq's highest court, which ruled that the Parliament cannot formally propose legislation. Nonetheless, the Parliament began a reading of its own draft, which was interrupted when MPs loyal to the prime minister walked out of the session.
Legislators said they had reached a stalemate that could only be broken by a political agreement among the major blocs. The ostensible agreement in October between Maliki and Salih for a new negotiating framework appeared to offer a route around the impasse.
Shahristani, however, underscored the primacy of the Cabinet version of the oil law.
"As far as I can see, I don't believe that the Council of Ministers will change this draft, and it is really in the court of the Parliament to decide either to legislate the last draft that was sent to them by the government, or to amend it if there is an agreement there," Shahristani said. "Otherwise, it will be just waiting, as was the case for the last draft that was sent in 2007."
At the heart of the oil law dispute is a great debate over the question of Iraqi federalism. In a country where more than 90 percent of state revenue comes from oil, the oil sector is a primary locus of economic and political power.
Given the traumatic history of Iraq, in which such power has often been used to persecute the powerless, the oil issue is charged with resentment and mistrust. Kurds point to the oppression they suffered under Saddam Hussein and regard Baghdad's attempts to centralize power as steps towards tyranny.
"Kurdistan has a constitutional right to develop its oil resources, and there is no way that we will allow ourselves yet again, ever again, to be held hostage to the whims of some bureaucrats in Baghdad," Salih said in a speech at the November conference in Erbil. "That history… is one that we cannot ignore that easily."
Shahristani, on the other hand, argued that without a central authority ensuring a fair distribution of wealth, oil would balkanize the country.
"Oil can be used to unify Iraq and build a prosperous, progressive country where people can live in peace, with a share of the oil wealth," Shahristani said. "Or it can be a tool for the disintegration for the country, civil war, among different regions, different governorates, and even different tribes. So, for me, the unity of the country, the peaceful coexistence of its ethnic and religious and sectarian factions, is extremely important."
Kurdish leaders contrast their success in post-2003 development to Baghdad's stagnation. Kurdistan enjoys an average of 22 hours of daily electricity while most southern provinces would be lucky to see 12; Kurdistan is relatively safe, while the south is still plagued by bombings and assassinations.
"It is therefore little surprise to me to see Iraqi compatriots of ours are thinking along the same lines and looking to Kurdistan as an inspiration," Salih said. "And if the Kurds can do it through decentralization and federalism, why should they be denied that very basic right enshrined in the Constitution?"
For Shahristani, however, that precedent is precisely the problem.
"We are hearing from all of the oil-producing areas, particularly from Basra, where 70 percent of Iraqi oil is being produced, as if the KRG is permitted to manage its own oil. 'We will not allow anybody else to manage our own oil, and we know what to do with our oil.' And that attitude prevails throughout the region," Shahristani said.
If Basra were to achieve greater autonomy, he suggested, such a move would affect Iraq's budget, from which the KRG receives 17 percent of federal revenues.
"If the south wants to behave the same way as the KRG are behaving, the first victims will be the KRG with their 17 percent. That's why we feel, in order to avoid any such friction between all the parts of the country, it's important to manage it centrally."
ExxonMobil's controversial foray into Kurdistan lends urgency to the oil law negotiations, but it also sets a major wedge between the two sides.
"This draws attention to the importance of having new legislation, that clarifies all of the procedures and the authorities," Shahristani said. "But as it stands now, it has definitely created more problems for both the central government and the KRG."
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[You must be registered and logged in to see this image.]
Then-Deputy Prime Minister Barham Salih (L) talks with Iraqi Prime Minister Nouri al-Maliki during a national assembly meeting May 20, 2006 in Baghdad. (CEERWAN AZIZ/Getty Images)
By Ben Van Heuvelen of Iraq Oil Report
Published December 16, 2011
BAGHDAD - Bullish investors who converged on the Kurdish capital of Erbil last month for an oil and gas conference heard optimistic words from political leaders, who expressed confidence that a new negotiating framework would produce long-delayed oil legislation by the end of the year.
One month later, that process has gone nowhere.
Kurdistan's Minster of Natural Resources Ashti Hawrami said he would sit down with Oil Minister Abdul Karim Luaibi, one on one, and create a new draft based on a version of the legislation that passed the Cabinet in 2007.
Not only have the two men failed to meet, but Deputy Prime Minister for Energy Hussain al-Shahristani said the Cabinet would not consider going back to the 2007 version.
"The only decision that was made by the Council of Ministers (Cabinet) was the draft that was presented a few months ago," Shahristani told Iraq Oil Report during a Thursday interview in his office. "And as far as the government – the Council of Ministers – is concerned, that's the only draft that is on the table for discussion."
Investors in both southern Iraq and the semi-autonomous Kurdistan region regard federal oil legislation as a key measure to ensure the long-term viability of capital-intensive projects. Without a solid legal foundation, they say, contracts are vulnerable to the changing winds of politics. And when the U.S. government has issued warnings against signing oil deals with the KRG, it has pointed to the legal uncertainty inherent in those contracts.
Indeed, both Baghdad and the Kurdistan Regional Government (KRG) have struck oil and gas deals based on diverging interpretations of the Constitution and Iraqi law. As a result, Iraq effectively has two competing oil sectors.
That rivalry came into stark relief in November when the KRG revealed it had signed contracts with ExxonMobil for six exploration blocks, in defiance of a Baghdad policy banning any of its contractors from oil deals in Kurdistan.
ExxonMobil is developing the West Qurna 1 oil field in Basra, which is currently producing about 350,000 barrels per day (bpd) – more than twice Kurdistan's entire output. That project is now in jeopardy, as Baghdad continues to maintain that Exxon cannot move forward in the KRG and keep working in Basra.
The Constitution does not definitively outline state powers over the oil sector, instead calling on Parliament to pass a modern oil law. Such legislation could serve to clarify key questions of contracting and management authority and revenue sharing, but political disputes – largely between Baghdad and the KRG – have so far derailed all legislative attempts.
One of the more promising political developments to date came on Oct. 27, when Prime Minister Nouri al-Malki and KRG Prime Minister Barham Salih met in Baghdad to discuss a path towards resolving several key issues between the two governments, including oil legislation and territorial disputes.
In a Nov. 15 interview with Iraq Oil Report, Hawrami said that he and Luaibi would meet by the end of the month, consistent with Maliki and Salih's agreement, and work off of the 2007 draft oil law.
At the same time, however, the KRG had just announced its deals with Exxon.
Since then, Luaibi and Hawrami have not met; moreover, Shahristani has suggested that no new oil law negotiation agreement ever existed.
"I have heard different versions of that story. I have heard what Mr. Barham Salih said, and I have heard what other participants in that (October) meeting have said. And it's not – I mean, the two stories are not identical," Shahristani said.
Asserting his authority as the head of the Cabinet's energy portfolio, Shahristani also appeared to suggest that no such agreement could be valid without the entire Cabinet's sign-off.
"Even if there was such an agreement, we have in Iraq… a state (composed) of laws, and the decisions have to be made by the Council of Ministers," he said.
Oil legislation rose to the top of the political agenda last summer, after a four-year pause.
Both the federal Oil Ministry and the Parliament's oil and energy committee, led by Adnan al-Janabi, drafted competing versions of an oil law. The Cabinet approved the Oil Ministry's version, which concentrated authority in the central government, while the Parliament version, which won support from the Kurds, outlined more powers for provinces and regions.
The Cabinet claimed that its version was the only legitimate draft, echoing a 2010 decision by Iraq's highest court, which ruled that the Parliament cannot formally propose legislation. Nonetheless, the Parliament began a reading of its own draft, which was interrupted when MPs loyal to the prime minister walked out of the session.
Legislators said they had reached a stalemate that could only be broken by a political agreement among the major blocs. The ostensible agreement in October between Maliki and Salih for a new negotiating framework appeared to offer a route around the impasse.
Shahristani, however, underscored the primacy of the Cabinet version of the oil law.
"As far as I can see, I don't believe that the Council of Ministers will change this draft, and it is really in the court of the Parliament to decide either to legislate the last draft that was sent to them by the government, or to amend it if there is an agreement there," Shahristani said. "Otherwise, it will be just waiting, as was the case for the last draft that was sent in 2007."
At the heart of the oil law dispute is a great debate over the question of Iraqi federalism. In a country where more than 90 percent of state revenue comes from oil, the oil sector is a primary locus of economic and political power.
Given the traumatic history of Iraq, in which such power has often been used to persecute the powerless, the oil issue is charged with resentment and mistrust. Kurds point to the oppression they suffered under Saddam Hussein and regard Baghdad's attempts to centralize power as steps towards tyranny.
"Kurdistan has a constitutional right to develop its oil resources, and there is no way that we will allow ourselves yet again, ever again, to be held hostage to the whims of some bureaucrats in Baghdad," Salih said in a speech at the November conference in Erbil. "That history… is one that we cannot ignore that easily."
Shahristani, on the other hand, argued that without a central authority ensuring a fair distribution of wealth, oil would balkanize the country.
"Oil can be used to unify Iraq and build a prosperous, progressive country where people can live in peace, with a share of the oil wealth," Shahristani said. "Or it can be a tool for the disintegration for the country, civil war, among different regions, different governorates, and even different tribes. So, for me, the unity of the country, the peaceful coexistence of its ethnic and religious and sectarian factions, is extremely important."
Kurdish leaders contrast their success in post-2003 development to Baghdad's stagnation. Kurdistan enjoys an average of 22 hours of daily electricity while most southern provinces would be lucky to see 12; Kurdistan is relatively safe, while the south is still plagued by bombings and assassinations.
"It is therefore little surprise to me to see Iraqi compatriots of ours are thinking along the same lines and looking to Kurdistan as an inspiration," Salih said. "And if the Kurds can do it through decentralization and federalism, why should they be denied that very basic right enshrined in the Constitution?"
For Shahristani, however, that precedent is precisely the problem.
"We are hearing from all of the oil-producing areas, particularly from Basra, where 70 percent of Iraqi oil is being produced, as if the KRG is permitted to manage its own oil. 'We will not allow anybody else to manage our own oil, and we know what to do with our oil.' And that attitude prevails throughout the region," Shahristani said.
If Basra were to achieve greater autonomy, he suggested, such a move would affect Iraq's budget, from which the KRG receives 17 percent of federal revenues.
"If the south wants to behave the same way as the KRG are behaving, the first victims will be the KRG with their 17 percent. That's why we feel, in order to avoid any such friction between all the parts of the country, it's important to manage it centrally."
ExxonMobil's controversial foray into Kurdistan lends urgency to the oil law negotiations, but it also sets a major wedge between the two sides.
"This draws attention to the importance of having new legislation, that clarifies all of the procedures and the authorities," Shahristani said. "But as it stands now, it has definitely created more problems for both the central government and the KRG."
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