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Thu 1 Feb 2007 04:18 PM

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Kurdistan signs own deals while Iraq debates oil law

Iraqi leaders continue to debate hydrocarbon law designed to encourage foreign investment

Iraq's absence of a legal framework governing investments and ownership of the country's oil resources has hampered foreign investment. The proposed hydrocarbon law could change all that, but dispute as to whether oil revenues belong to regional or federal governments continues to rage.

The law will establish a legal framework for the Baghdad government to sign production sharing agreements (PSAs) with foreign companies to develop Iraqi oil reserves. But the Kurdistan Regional Government (KRG), and Baghdad's federal government have yet to reach a concrete agreement.

Barham Saleh, Iraq's deputy prime minister, acknowledged that differences remain among those negotiating the hydrocarbon law, particularly whether the resource is controlled by regional governments or Baghdad.

"When it comes to oil exploration, the Iraqi constitution signed in 2005 is not being honoured by the federal government," said Eamad Mazouri, KRG's representative in the UAE.

"The constitution states that any reserves under the ground are the property of the region where they are located. We are in dispute with the federal government who claim that they have a right to revenues gained from wells country wide. They are going against parliament, a constitutional committee who drafted the law and put it to vote."

According to Saleh, the problem is that a number of PSAs have already been signed by the KRG with several small foreign oil and gas companies, including US-based Calibre Energy, Canada's Addax Petroleum, Norway's DNO and Turkey's Petoil. Mazouri rejects this claim, suggesting that many Iraqi politicians have yet to grasp the concept of federalism.

"What the federal government forgets is that we, as a regional government, give power to them. On this basis of autonomy, we do not have to ask Baghdad for rights, we give Baghdad their rights."

Some Iraqi officials have said the law may not take effect for months, despite plans for it to be presented to the Iraqi parliament during January.

"I don't underestimate the gravity of the situation in Iraq," said Saleh during a UN and US-sponsored Iraq donor conference in Abu Dhabi. "We are in a very critical situation."

Iraq's hydrocarbon law is crucial for Iraq to be able to begin talks with international oil companies. Foreign companies, with their huge investment clout and technology, are in the best position to quickly modernise Iraq's oil sector and meet the country's goal of doubling the current crude production of 2.5 million barrels per day by 2010, said Saleh.

"Iraq needs to send a strong signal to the international community about investment in oil," the deputy prime minister said. "We need to push liberalisation and open our markets."

Saleh called for partnerships with international companies to boost Iraq's oil industry, suggesting the country's emergence as a secure petro-democracy could quell rampant sectarian violence.

Iraq's oil production is currently overseen by the country's Ministry of Petroleum and two state-run oil companies. Mazouri suggests abolishing this system is the only way to allow foreign companies access to all areas of oil exploration and production in the country.

"The hydrocarbon law is pivotal for Iraq," he said.

"The country has always been run by a totalitarian regime that hasn't allowed foreign companies to invest in its oil reserves. But now we have a new Iraq, and one which needs foreign capital and expertise.

"The law will provide a basis for foreign companies and give them incentives to invest. I don't believe we can do it on our own in view of the destruction and devastation the country continues to see."

But despite their disputes, both the federal government and the KRG believe the negotiation of Iraq's hydrocarbon law can be done peacefully. A few weeks ago, KRG's prime minister, Nechirvan Barzani reached an agreement in Baghdad that would allow the KRG a 17% share of the country's oil revenues. This is based on Kurdistan comprising 17% of the Iraq's population.

Iraq's oil minister announced Iraq had exported an average of 1.65 million barrels per day of crude in 2006, nearly 150,000 barrels per day higher than estimates from shipping and industry sources.

At the end of January Iraqi Oil Minister Hussain Shahristani announced Iraq will place its most prized oilfields under the control of a new national oil company. It will invite multinationals to help boost exports and production. Twenty seven producing oilfields are earmarked for the Iraqi National Oil Company.

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