Recently, the Iraqi authorities have pursued two policies to address the chronic problems afflicting the country's oil industry. But despite these attempts, there remain many doubts about the possibility of these attempts succeeding. The first attempt involves salvaging the oil and gas law from oblivion and neglect. To be sure, the cabinet had referred the first draft of this law to parliament in February, 2007. But the bill has yet to be discussed there, because of disputes between the Kurdistan Alliance and other political groups. In a meeting at the end of August between Deputy Prime Minister for Energy Affairs Hussain al-Shahristani and parliament speaker Osama al-Nujaifi, it was agreed that a 12-person parliamentary committee would be established, to be chaired by the Chairman of the Committee on Energy Adnan al-Janabi, with four members from the al-Iraqiya bloc, six from the National Alliance bloc and two from the Kurdistan Alliance. Yet two weeks after the agreement was reached, another committee was established, comprising six members and chaired by Deputy Speaker Qusay al-Suhail (Sadrist), with the membership of the Federal Minister of Oil, Minister of Natural Resources of the Kurdistan region and three deputies from the major political blocs. The task of this Six-Party body is to select a draft law, which parliament must discuss (from among three bills currently on the table). Immediately after this agreement, the government signed another with the Kurdistan Regional Government (KRG) on September 14, in which the KRG pledged to export 140,000 barrels of crude oil per day in September, and 200,000 barrels per day for the rest of the year, then 250,000 barrels per day in 2013. This would be done through the Iraqi oil institutions (the State Oil Marketing Organization – SOMO). Recall that the budget of the KRG for 2013 is based on an export figure of 250,000 barrels of crude oil per day. In return, the Iraqi government pledged to pay the costs of production and exportation to the international oil companies operating in Kurdistan (around $ 850 million annually), in addition to paying 17 percent of the total oil revenues from Iraqi oil exports to the KRG. Needless to say, these two steps are an important attempt to tackle chronic problems blighting the Iraqi oil industry since 2003. Nevertheless, many questions remain, such as: Can the politicians involved overcome the differences that have accumulated over the past years? Is there a sufficient measure of political will that would allow compromise settlements to be reached, serving the interests of all parties concerned amid this tense political climate? With regard to the oil law, which version of it will be adopted? Will it be the one that was approved by the State Shura Council, or will it be the cabinet's version? In other words, will the version that includes original extensions of the fields and exploration blocks be adopted, or the one that does not? The problem of the Iraqi oil law lies in the fact that politicians are using it as a bargaining chip, rather than an essential piece of legislation for the country's single most important resource. To be sure, this flippant attitude and obstructionism will cause Iraq to incur major losses in the future. There is also another significant challenge facing lawmakers. It has been a long time (more than five years) since the bill was proposed in 2007. Since that time, the reality of the Iraqi oil industry has radically changed, with the federal government signing around 19 service agreements, and the KRG signing about 48 production sharing agreements with international companies. These contracts cover some of the most important fields and exploration blocks in Iraq, and many of them are inconsistent with the bill of 2007. So what will happen now? Will these contracts be redrafted to comply with the new law? Or will the new law be rephrased to be consistent with the agreements that have been signed? If so, then which agreements will these be exactly – those of the federal government, or those of the KRG? These contradictions raise important legal, constitutional and political problems. Furthermore, the mere fact that they are being raised will hinder the natural growth of the Iraqi oil industry, due to the legal proceedings that must be taken to avoid these problems. The oil agreement between Baghdad and Erbil represents a kind of a compromise that is satisfactory to both parties. The Kurdish authorities have agreed to export crude oil through the Iraqi institutions, and in return, Baghdad has agreed to reimburse the costs borne by oil companies in the Kurdistan Region, and pay the KRG's share of the total oil revenues of Iraq. But the disputes between Erbil and Baghdad go beyond these issues, which include both oil-relates and political ones. For example, the KRG has signed bilateral agreements with Turkey to export crude oil and natural gas, directly through pipelines built without the consent of the Iraqi government. This is contrary to the constitution, which makes the export of hydrocarbons the exclusive purview of the Iraqi government. There are other differences regarding “disputed areas", which are many, most importantly Kirkuk. So how will the problem be resolved, and if things get worse, what effect will this have on the oil agreement in the long run? There also are disagreements about the interpretation of some provisions of the constitution, and the production sharing agreements signed between the KRG and international oil companies. Baghdad has adopted a stringent policy, which prohibits any oil company operating in the Kurdistan region, from operating in the remainder of the Iraqi territories. Despite this, many mega oil corporations have challenged this policy. According to the MEES bulletin, a sharp debate is currently taking place in Iraqi political circles over the future of Iraqi Kurdistan, especially with regard to the likelihood of its secession. The oil issue is at the heart of this debate. Some have admitted that the KRG's agreements with oil companies have brought bigger profits for the companies than the service agreements signed between them and Baghdad. There has also been acknowledgement that oil and gas discoveries in the KRG were much bigger than was anticipated. Finally, Iraqi Kurdistan seems to be safer and more stable compared to the rest of Iraq. In light of these facts, there is a call by these groups for compromise solutions to be reached with the KRG, in order to persuade the people of Iraqi Kurdistan to avoid secession. Sources have confirmed to MEES that these groups call for “facilitations" in the rest of Iraq for oil companies operating in Kurdistan, with an end to the boycott in place, in order to benefit from their expertise in the rest of Iraq as well. But others are calling for a strict oil policy with the KRG, in the belief that the latter has stood to gain a lot since 2003, and that it is therefore better not to offer any more concessions that would help the KRG financially in seeking independence. It is clear that the United States has used its influence during the past few weeks to support these Iraqi reconciliatory attempts, according to the sources that spoke to MEES. This is in addition to the dialogue taking place between the National Alliance and the Kurdistan Alliance to improve the atmosphere between them. * Mr. Khadduri is a consultant for MEES Oil & Gas (MeesEnergy)
