The rise and fall of Iraq’s oil law

The draft Iraqi petroleum law, which is meant to create the framework for nationwide distribution of the country’s immense oil wealth and structure foreign investment, is bringing divisiveness instead of reconciliation.

This agreement, which included all major ethnic and sectarian

power blocs, initially revealed an unprecedented level of cooperation, particularly with regard to governance of Iraq’s oil reserves. However, soon after the initial enthusiasm, the legislation got bogged down in a morass of mutual recrimination on the Iraqi and US sides.
The bill would allow an amount of centralization, because the oil revenue would go to Baghdad, which would then distribute the wealth based on population demographics to all 18 provinces. This law could act as a salve for Sunnis, who fear that they will be left out of any oil plan by the politically dominant (and oil-rich) Shi’ites and Kurds. However, Parliament went into summer recess without passing the law, and the success of the project could be in doubt.

The draft law vests regions with negotiating power to conclude exploration and development agreements with international oil companies (IOCs), subject to review and approval by the central authorities in Baghdad. A controversial aspect of the code is that it will allow regions to enter production-sharing agreements (PSA) with IOCs, a feature that some Iraqis feel conceals a tacit bid by foreigners to gain control over the country’s petroleum resources.

To mitigate such fears, Iraqi officials have insisted that all contracts be subject to a transparent bidding process. Many foreign delegates contend that changes in bidding protocols will do little to stem the corruption they believe is rife in the upper echelons of government, or diminish the fear among non-Americans (Iraqis and the international community) that US companies will be favored. However, what is apparent is that Iraqi politics is in a period of disarray that it has not been in since the initial phase of the 2003 invasion.

Some oil-industry experts respond that there is little to fear, since foreigners have little incentive to invest in Iraq, because the law not only fails to adequately protect investors adequately, but remains vague and uncertain. Further, in spite of the much-touted “troop surge”, the security situation looks as bad as ever, which again diminishes the prospects for bids by Western IOCs.

Asia Times