KurdistanObserver.com
No Deal on Iraq Oil Control
June 21, 2007
Author : Energy Analysis Editor
By BEN
LANDO
While Iraqi negotiators have made a major
breakthrough on sharing revenue from oil sales, the key issue of exactly how to
govern the country's vast reserves is far from settled.
Negotiators from the Iraqi government and the Kurdistan Regional Government will
now tackle that issue, having spent the past month working out a law whereby
revenue from oil sales -- as well as other income -- would be collected into
accounts and redistributed to the federal government, regions and provinces.
But control over Iraq's 115 billion barrels of oil reserves -- the third-largest
in the world -- isn't easily decided; arguments that have held up negotiations
and threaten approval evolve from the 2005 constitution and, when resolved, will
determine who in Iraq has control over developing which oil fields and what
access foreign oil companies will have.
The Bush administration has been pressing Iraq to decide revenue sharing as both
a semblance of a bone to show for an occupation thus far gone poorly and a
potential first step toward interfactional cooperation. The Democratic-led
Congress included revenue sharing as a benchmark for success in its recent
approval of Iraq war funding. (It should be noted, however, that both sides
pressed Iraqi leaders not to pass the revenue-sharing law but the oil law that
they mistakenly said would include revenue sharing.)
The negotiators have been holding discussions since August on a package of four
bills, including the reorganization of the Oil Ministry and the Iraqi National
Oil Company. They approved the proposed revenue-sharing law Wednesday night, KRG
Minister of Natural Resources Ashti Hawrami, who led the Kurdish delegation in
the talks, told UPI from a mobile phone in Baghdad.
The law would allocate 17 percent of the revenues to be redistributed to the KRG,
after the federal government gets what it needs. Now it must be passed by the
council of ministers, which is likely, then the full Parliament.
And that's where the momentum stops, at least for now. The four bills are to be
taken up as one package, not individually. The oil law, the common name for the
hydrocarbons framework law, was approved by negotiators and the council of
ministers in February. But in April, when the Oil Ministry unveiled four annexes
to the law -- the breakdown of oil fields under central government versus
regional/provincial control -- the Kurds protested and the law was kicked back
to negotiations.
"Having agreed to the revenue sharing law, now our focus will go back to the
remaining issues of the oil law, which is basically the annexes and the role of
INOC," Hawrami said. Per the constitution, any oil beyond what has already been
discovered -- with Iraq underexplored, there is likely a lot to be found -- is
given to the provinces and regions to develop. (Kurdistan is the only official
region.) But the constitution is vague, and various sides have their own
interpretations. The Kurds contend that too many producing and discovered oil
fields have been designated to the federal government, via INOC.
"We all want to maximize revenues to the Iraqi people," Hawrami said, adding
INOC doesn ' t have the technical capability to do that, though it deserves a
role in the country ' s oil sector. "We should not tie ourselves down to a
single entity and then regret it later on." Tariq Shafiq, an Iraqi now working
from London and Amman, Jordan, as an oil consultant and one of three authors of
the oil law, argues for a strictly central control over the country's oil sector
with regional and provincial participation in INOC.
He warns that outside the federal strategy the oil will be developed in haste,
with provinces overly dependent on foreign oil companies. "They are so embryonic
they have no institutions to take on oil and gas development projects," Shafiq
said, adding "though the KRG may be approaching it." Iraq's current
infrastructure is in need of repair and modernization after decades of war,
sanctions and mismanagement by Saddam Hussein. This could be funded by internal
oil revenue as well as foreign investment, which is necessary at some level.
Iraq exports 1.6 million barrels per day of the average 2 million bpd it
produces (though it dropped to 1.85 million bpd last week, according to the U.S.
State Department). Last year exports brought in $31.3 billion, which funded 93
percent of the federal budget.
With this, Shafiq said, Iraq's reserves could handle a sustainable production
level rivaled only by Saudi Arabia.
That's without bringing brand new fields online, which he said a
regional/provincial control over the reserves will lead to, causing too much
competition with INOC and flooding the oil market.
"Do we need to negotiate adding more reserves?" asked Shafiq, who now opposes
the law. He ' s joined by members of Sunni political parties and the powerful
oil unions, among others, who fear the law will allow for overly lucrative
contracts with foreign oil companies. The unions, which went on strike for three
days this month for a number of reasons including opposition to the law, support
only limited foreign investment. Passage by Parliament, racked by unstable
political friction inside a country with a rapidly deteriorating security
crisis, isn't guaranteed.
"The pledge by some Iraqi politicians to pass the new oil law by the end of June
is not likely to be fulfilled," Greg Priddy, global energy analyst at the
business risk consultant Eurasia Group, wrote Tuesday in the firm ' s Energy
Trendwatch. "And Iraqi lawmakers are not expected to tackle this issue until
after the parliamentary recess scheduled for the end of July." (e-mail: energy@upi.com)
