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2 Fighting overshadows Iraq's oil
law By Adam Wolfe
Iraq's national oil law has been touted as
a major step toward the political reconciliation
of the country's major sects. The US military
"surge" in Baghdad is, in part, designed to
provide the sectarian-defined political groups
breathing room to pass this and other measures
that would give every group a greater stake in the
political and economic future of a unified Iraq.
Yet as negotiations over the oil law drag on, and
grow increasingly bitter, such
reconciliation seems less and
less likely.
It now appears impossible for
the Iraqi Parliament to pass the national oil law
by the government-imposed deadline of May 31. The
immediate cost of this failure will be economic -
while many of the Western majors will not invest
in Iraq because of the remaining security risks,
Eastern and smaller oil firms appear willing if
the political risks are first removed through
legislation.
However, the long-term damage
done by the failure to reach a consensus on the
oil law will be a hardening of the sectarian
fractures in Iraq's political landscape. The
debates surrounding the oil law do not center on
what is best for the country as a whole, but only
on what is best for each sectarian group. By
defining the debate as yet another zero-sum
competition, Iraq's politicians have made it
impossible to emerge from the negotiations without
at least one group feeling like the losers. The US
Embassy in Iraq has only encouraged this situation
by insisting on a greater role for foreign firms
in future investments.
As such,
reconciliation will never emerge from the passage
of an oil law in Iraq. This darkens the prospects
of success for the US military "surge".
Background on the oil law The
Iraqi constitution passed in 2005 was deliberately
vague on ownership and control of Iraq's oil. The
document was written in such a way as to win the
approval of the Kurdish and Shi'ite negotiators
(Sunni Arab representation at the negotiations was
minimal because the Sunni leadership was still
largely boycotting the political process at the
time). To do so, the text was vague on issues of
governance and specific on issues of power
politics.
Article 111 of the constitution
states that "oil and gas are [under] the ownership
of all the people of Iraq", while Article 112
calls for distribution of oil revenues to be
allocated "in a fair manner in proportion to the
population", with little clarity on either issue.
Because the constitution is so vague, and because
Sunni Arab leaders remain unsatisfied with large
portions of the constitution, a new oil law is
needed to clarify issues of control and revenue
distribution.
The importance of a
comprehensible oil law cannot be understated. The
oil sector accounts for 95% of the government's
revenues. Iraq's proven reserves are estimated at
115 billion barrels, putting it only behind Saudi
Arabia and Canada. Less than 20% of the country
has been explored, however, and many believe that
Iraq's western regions could almost double Iraq's
proven reserves if exploration were to go ahead.
It is vital for the future of Iraq that
there is legal certainty in the oil industry to
encourage future exploration and acceptable
distribution of the country's leading stream of
revenue among Iraq's major sectarian groupings.
The Kurdish position Kurdish
opposition to the current draft is based on fear
that the central government will have too much
control over the oilfields in the relatively
peaceful north.
Kurdish leaders claim that
the constitution gives them the right to develop
the proven reserves in their semi-autonomous
region because it grants regional control over
existing oil reserves. However, Shi'ite and Sunni
leaders interpret the constitution as only
granting regional control to operations that were
developed before 2005. This would mean that
incremental additions to existing operations would
also be controlled by the central government.
Since the constitution did not define what
constitutes a "new" field, the sectarian groups
are now pushing for their interpretation to be
spelled out in the law.
The Kurds also
want decisions about foreign investment to be made
at the regional level. In fact, they have already
negotiated deals with foreign oil firms to explore
and develop the Kurdish semi-autonomous zone. In
2004, the Kurdish Democratic Party reached an
agreement with Norway's DNO ASA, which began
drilling in December 2005. This month, DNO
announced that it had begun pumping oil and will
be able to deliver it to the market in June. Under
the existing draft of the oil law, the deal
reached with DNO and other contracts made by the
Kurdistan Regional Government (KRG) would have to
be renegotiated.
Kurdish leaders are
concerned about granting control to the central
government for two main reasons. First, assuming
that Kirkuk is brought under control of the KRG,
the proven reserves in the semi-autonomous region
would provide enough revenues to fund a Kurdish
state when Kurdish leaders feel it is time to
cross that bridge. Second, they are skeptical
about granting control to the ill-defined bodies
that would control oil developments and revenues,
which the central government would oversee.
The existing draft would create the Iraqi
National Oil Co (INOC), a state-run oil firm, to
manage new projects. The Federal Oil and Gas
Council would regulate the industry, but it is not
clear how membership to the council would be
granted, or whether it would be limited to Iraqis.
The Kurdish leadership would prefer
regional control of all oil reserves, with a
defined portion of revenues going to the central
government. Ideally, existing oilfields would
contribute a lower rate, and newly developed
fields (narrowly defined) would contribute to the
central fund at a higher rate.
Sunni
objections Opposition to the draft oil law
is only part of a larger agenda for Sunni
politicians. The Sunni-majority region is
oil-poor, and Sunni
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