Currency News

Analysis: Fog settles over Iraq oil law

By Ben Lando
UPI Energy Correspondent

Published July 6, 2007

It looks like a whirlwind of activity in Iraq as politicians seemingly make progress on key legislation governing the world's third largest proven oil reserves. As the dust settles, however, a look into the eye of the Iraq hydrocarbons law storm this week shows that not everyone considers the action a step forward.
    Just last week key members of negotiating teams representing the federal government in Baghdad and the semi-autonomous Kurdistan Regional Government (KRG) said that agreement on the draft oil law was maybe two months away. The two sides were stuck, basically, on the extent of federal vs. regional/governorate control over the oil reserves.
    Suddenly Tuesday, the council of ministers approved the oil law and sent it to parliament.
    Oil minister Hussain Al Shahristani said that the draft included "some changes," including format and other legalese recommendations made by the Shura Council - a constitutional and legal checking body.
    "In addition to improving the legal format of the draft law, it also introduced or changed some basic points that have been debated and agreed," said Shahristani, speaking to United Press International from Baghdad in a telephone interview. Those agreements, between the Kurds and federal government, would not be changed, he added.
    The parliament was to take up the law Wednesday, but could not reach quorum. They will likely not address the oil law until next week, at the earliest. The council of ministers meeting just barely made quorum. Numerous key parties are boycotting either out of opposition to the oil law or the government of Prime Minister Nuri Al Maliki.
    Three bills related to the oil law are also to be decided. The revenue sharing law, which will decide how oil sales will be divided across the country, was to be taken up by the council of ministers Thursday. Shahristani said that was postponed to next week. Needed bills defining the role of the Iraq National Oil Company (INOC) and the ministry of oil are still being negotiated, a step prior to being sent to the council of ministers for approval and then on to the parliament.
    KRG natural resources minister Ashti Hawrami said Tuesday that he had not been consulted on the language that the council approved and warned against any law that made "substantive changes" to what was agreed upon in March. Although the Kurds signed onto the March draft of the oil law, in late April they stalled it after the unveiling of what is termed "the annexes" to the law - four lists detailing control of currently producing oilfields, discovered fields that are not producing and areas to be explored, to either the federal government, via INOC, or the region/governorate where the oil is located. The Kurds say that too much is given outright to INOC, which they called unconstitutional.
    "If the Kurds are not in, they can never approve" the law, said the Amman and London-based consultant Tarek Shafiq, an Iraqi who was one of three tasked with drafting the oil law last summer. (He and co-author Farouk Al Kasim have joined more than 60 Iraqi technocrats now opposed to the law. Thamir Ghadhban, the third, is now Maliki's top energy advisor and part of the negotiations on behalf of the federal government.)
    Shahristani said that the law approved by the council of ministers Tuesday set aside the annexes. Instead, a federal oil and gas council, enshrined in the oil law, would determine who gets what oil. Hawrami told UPI last week that was an option being looked at, but the KRG would only agree to it if the role of INOC were more defined.
    While Hawrami said that the Kurds are still evaluating the ministers' draft, other factions have strongly opposed it.
    The Shiite Sadr Movement and the Iraqi Accord Front and Iraq Front for National Dialogue, both Sunni parties, are leading the parliament boycott. They - along with many technocrats, the powerful oil unions, and others - oppose a decentralized oil sector and too much access by foreign companies to Iraq's oil. The Association of Muslim Scholars (AMS) - Sunni clerics - has issued an edict against voting for the law. "Unlike in Shiite Islam, the authority of Sunni clerics is limited, and the AMS fatwa may not be decisive," wrote University of Michigan Middle East expert Juan Cole. "But given that Sunni fundamentalist deputies already oppose the draft, it adds oil the fire."
    While Iraq is still a major producer at 2 million barrels per day, its reserves could handle more. But Saddam Hussein's mismanagement, UN sanctions, and now the war have crippled the infrastructure. Investment, both internal and foreign, is seen as necessary - even the latter, in some measure, is supported by every side. The Kurds, however, favor more of a free market approach, with a limited role for INOC where it mostly competes against other oil companies for work.
    The Shura Council called for a hold on the oil law, until the 2005 constitution is amended and INOC, the federal government's arm in the oil sector, is established. Among other issues, aspects of the constitution concerning oil are vague, leading to various interpretations.
    The council also, among other recommendations, changed the Kurd-approved draft of the oil law, calling for all contracts for exploration, development, and production of Iraq's oil to be signed by the federal government.
    The Bush administration is pushing hard for action on the oil law, calling it a "benchmark for reconciliation." Whether the law will bring political, sectarian, and religious factions together - or create a larger wedge - is as unknown as the future of the oil law itself.

Copyright © 2007 News World Communications, Inc. All rights reserved.
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