The sovereignty complex impedes the adoption of the oil and gas law in Iraq

BAGHDAD (Reuters) – Mazhar Salih, advisor to Iraq’s Prime Minister, stated that the oil and gas bill, which is currently awaiting ratification by Parliament, “will spark investments in the energy sector and enhance revenues.”

He said the law “will establish a stable national road map for the oil sector, attract investments in oil and gas projects and establish a unified oil policy and a multilateral committee to supervise oil and gas fields, allowing Iraq to benefit from its hydrocarbon potential effectively, including in the Kurdistan region.”

The approval of the bill is likely to pave the door for production-sharing agreements with international firms. However, the discrepancies between Baghdad and Erbil continue to be an impediment to the law’s passage.

The disagreement over other aspects would be just technical if oil and mineral resources were distributed based on citizenship.

According to observers, the crux of the disagreement stems from a form of sovereignty struggle over oil rights, production, and earnings. While Baghdad wants all rights to be vested in the central government, so that all revenues end up in one account subject to central government supervision, the Kurdistan region authorities want the right to contract with foreign companies and have the revenues go to their own accounts, not those of Baghdad.

Firas Al-Muslimaoui, a “There is a real will in the House of Representatives to legislate the law,” pointing out that “Iraq’s oil is one and indivisible, and there is a movement towards achieving justice in the distribution of wealth to the people, whether in the Kurdistan region, the center, or the south.”

While Iraq exports over 3 million barrels of oil per day, the Kurdistan Region exported approximately 450 thousand barrels per day prior to the closing of the Ceyhan line in Turkey.

“Adopting a unified national oil policy and achieving optimal investment and production across Iraq’s oil area, beginning with the southern fields and progressing to the northern and regional fields, is an important and strategic matter in the matter of taking the country forward,” Mazhar Salih said.

The proposed oil and gas legislation of Iraq, which is now being debated in Parliament, states that responsibility for administering the country’s oil resources must be delegated to a national oil firm and overseen by a federal council specializing in this issue. According to Kurdish officials, the Iraqi government “has the right to participate in the management of fields discovered before 2005, but fields discovered after that belong to the regional government.”

According to the Iraqi News Agency, the two parties’ consultation committee includes “the Minister of Oil, the Minister of Natural Resources in the region, the Director General of SOMO Company, and the advanced staff in the Ministry of Oil, as well as oil-producing governorates such as Basra, Dhi Qar, Maysan, and others.”

According to Iraqi Prime Minister Muhammad Shiaa Al-Sudani, “the draft oil and gas law is one of the basic and important laws, representing a factor of strength and unity for Iraq, and it has been stuck for years, at a time when the country today is in dire need of its legislation and to benefit from this natural wealth.” In all disciplines and sectors, in addition to the legislative contribution to the resolution of many unresolved problems.”

The major source of conflict is the political system based on sectarian quotas. According to observers, if oil and mineral riches were split based on citizenship, with revenue rights distributed based on population size, the disagreement over other aspects would be purely technical. While the disagreement is now between two sides, each of which seeks to assert its sovereignty. The central government is founded on the fact that it governs all of Iraq, but the Kurdistan Regional Government is based on the federal system, which allows it to manage the region’s oil earnings. This became the subject of both a legal and a political controversy.

The Federal Court in Baghdad issued an order in February 2022 requiring the area to return oil generated on its territories to Baghdad and to annul contracts the region had made with international businesses. Contracts made between regional government and a number of international corporations were also declared null and void by the judgement.

According to observers, the issue for Baghdad’s ruling parties is not limited to sovereign motives, but also to Iran’s reservations that the region should have its own source of funding and not be subject to the supervision of the central authority, which serves as a material basis for secessionist motives.

Following debates prompted by the need to approve the general budget for the next three years, Baghdad and Erbil reached a temporary agreement in early April under which Kurdistan oil sales would be handled by the Iraqi Oil Marketing Company “SOMO,” and revenues generated by the region’s fields would be deposited in an account. A banker at the Central Bank of Iraq or one of the Central Bank of Iraq’s recognized banks.

The topic is also fraught with internal Kurdish dispute, as the Patriotic Union of Kurdistan Party, led by Bafel Talabani, wants the central government to defend and guarantee its portion of Sulaymaniyah Governorate, which serves as its major base, and not leave it vulnerable.

The Baghdad administration is concerned that providing wide powers to the regional government may eventually provoke local authorities in oil-producing governorates like Kirkuk and Basra to want investment, extraction, and marketing powers comparable to those sought by the regional government. Because “federal Iraq” takes sectarian distinctions into consideration and provides Kurds substantial administrative rights, both Sunni-dominated governorates and Shiite-dominated governorates will have incentive to strive to be a region with the same privileges.

The draft legislation has 53 provisions that require the formation of the Federal Petroleum Council, which is led by the Prime Minister and comprises ministries and governorate representatives. It is in charge of establishing petroleum policies, giving contract implementation instructions, authorizing exploration, development, and production, and approving concluded contracts. Within three months, the contracts must be signed by the Federal Ministry of Oil and authorized by the Federal Oil Council.

According to the draft oil and gas bill accessible to Parliament, responsibility for administering the country’s oil fields should be delegated to a national oil firm.

According to certain oil analysts, “If the law is passed in its current form, this will necessarily mean reducing treasury revenues, as every governorate will want to follow Erbil’s example that ownership of oil discoveries, after 2005, belongs to it, and a percentage of it is supplied to the treasury.”

The regional administration resorts to a ruse in an attempt to reclaim lost “sovereignty,” seeking that the investment, extraction, and marketing rights decided by the competent “Federal Council” be based on agreement between the two sides. This might be a future complex that makes investment choices in Basra fields contingent on regional authority clearance, just as investment decisions in Kurdistan rights are contingent on approval.

Representative Al-Muslimaoui stated that the draft oil and gas law would most likely be finished during the “current legislative term,” and that it would be passed in “the next legislative term after about four months.”

Al-Muslimaoui, on the other hand, is one of the majority of MPs who feel that “Iraq’s oil is one, and its administration must be one.” However, this notion lacks the insight that the sectarian quota system is what separates Iraq’s oil from the others. Instead of dividing its earnings based on citizenship and population, it has become normal for the Kurds to see their oil as their oil, and for the Sunnis and Shiites to see this precedence as an incentive to have their provinces’ resources.