Political comments on the draft of the Iraqi oil law


Is Iraq in need of such an Oil Law?

      

The International Oil Companies (IOCs), the US and UK administrations, and the IMF have to recognize that they will not be able to enforce an oil law which seems to be no less than the old concessionary model in a new guise.

 

The experience of the past four years has proved that their policies could not be imposed even with the help of over 180,000 occupying forces and whilst the Iraqi state is on its knees. Such policies have instead resulted in the death of over two hundred thousand Iraqi civilians, more destruction to the country’s infrastructure, more suffering to millions of Iraqis and complete failure in achieving any of their objectives.

 

So even if the IOCs and the US/UK administrations succeed in getting the elected Iraqi parliament to approve this law by using all manner of pressure and threats, by now they should be aware that their chances of implementing a law which does not reflect the interests of Iraqis in any shape or form, in the near and long term future, is diminishing.

 

It is international law which states that the occupying forces have no rights to impose laws which do not reflect the interests of the occupied people and such laws are null and void if any future elected Iraqi parliament declares them to be so.   

 

What has been released in the past few weeks is no more then a component of the best-kept secret — the final draft of the “Iraqi Oil and Gas (Hydrocarbon) Law” dated 15 January 2007. The preliminary outline of the first draft started circulating in late 2003 during the Governing council period, to be followed by the concept of another draft oil law during Iyad Allawi’s regime and then to be followed by a third draft in 2005 and then the July 2006 draft which was circulating in the second part of 2006.

 

Finally the Iraqi Government allowed the leak of this latest draft, but it was surprising to find out that some key parts of the draft were still not available up to this date.

 

The key parts of the draft which have not yet been released are:

 

·         The three appendices, which will specify which parts of the already discovered giant oil fields will be counted as “existing producing fields” and which will be counted as “not yet developed fields” that are partially or not yet producing oil. This judgment will decide which oil fields will be allocated to the Iraqi National Oil Company (INOC) and which of the existing fields will be allocated to the IOCs. The appendices will determine if 10% or possibly up to 80% of these major oil fields will be given to the IOCs.

 

·         The law does not give any indication of the conditions and roles acceptable under the “Exploration Risk contracts (ERC)” or “Exploration and Production contracts (EPC)” it refers to. It is very likely that this is an attempt to exclude these key elements from this law.

 

 

Several Iraqi and international oil experts and analysts have in the past few weeks written a number of articles and studies on this draft of the oil law, emphasizing the major shortfall of the new draft which can be short-listed in general as follows:

 

1.                  The main templates for models of contracts which will be granted to the IOCs under article 9/5 of the draft — specifically the “Exploration Risk Contract” (ERC) and the “Exploration and Production Contract” (EPC) — are not dissimilar in practice from the famous contract model known as the “Production Sharing Contract” (PSC), which is the favored model for the IOCs.

 

2.                  The law provides the IOCs exclusive control of what may be the major discovered giant oil fields for up to 35 years and guarantees them billions of dollars of profits for between 20 and 25 years — profits that should go to the Iraqi people.

 

3.                  The Iraqi parliament should be the authority which approves and signs all long term contracts with the IOCs including ERC or EPC contracts, and not the “Federal Oil and Gas Council” (FOGC) as stated in article 12 of the draft.

 

4.                  Article 41, sections B and D, states that all unresolved disputes between the State of Iraq and any foreign investors will be submitted for arbitration to an international court and will not be decided upon by an Iraqi court. This is no doubt a surrender of Iraqi sovereignty.  

 

5.                  This is the wrong timing for introducing such a strategic oil law. As several articles of the Iraqi constitution, including articles 112,113, and 115, are under review and there is the possibility that some of these articles will be changed within the coming months, it would be unwise to base such an important law on unknown constitutional articles. It is likely that the new oil law will contradict the new articles of the constitution. On the other hand, if articles 112 and 115 are altered as expected, it will possibly remove the fears of some experts regarding the tendency within the law to lead to sectarian and regional agendas.

 

6.                  The law favors the interests of the IOCs over the long term interests and future security of the Iraqi people.

 

7.                  There are other shortfalls within the law, such as article 35 which allows the IOCs to transfer all profits outside Iraq without calling for part of the profit to be reinvested on Iraq projects. The lack of transparency within the law is another deficit.


Conclusions

 

1.       Whilst Iraq is still under occupation and the political situation is wholly unstable, it is in the interests of the Iraqi people under these circumstances not to rush into any new strategic oil law that will decide the future of the country’s oil and gas wealth within the lifetime of this parliament.

 

2.       It will be in the Iraqi people’s interest to have a “provisional oil law” which re-establishes INOC and gives it full decision-making powers similar to what was stated within Iraqi laws 123 and 130 of 1967, until such time comes when Iraq is no longer under occupation.

 

Furthermore the provisional oil law should permit only a short-term contract between INOC and the international oil companies so as to provide technical help to develop the existing oil fields, which can on the whole produce up to 3.5 million barrels/day — the same level of oil production as in 1979.

 

This level of Iraqi oil production will take at least three years to achieve, but only if the country has normal political stability — which cannot exist as long as the occupying powers are controlling the country. This is also the level of production which OPEC has agreed to. Such a level will not undermine the international oil market prices and will provide Iraq with over 75 billion dollars of oil revenue per year (calculated on the existing average price of 60 dollars/barrel).

 

3.       The draft oil law is no doubt “re-privatizing” Iraqi oil wealth and will return Iraq to the era prior to Law 80 of 1961. Law 80 nationalized 99.5% of the Iraqi land from the IOCs and returned it to the Iraqi nation.

 

4.       The draft law will also dispose of all Iraqi laws which nationalize the interests of the IOCs. This will include law 69 of 1972 which nationalized the Iraqi Petroleum Co., law 200 of 1975 which nationalized the Basrah Petroleum Co., and laws 70, 90, and 101 of 1973 which nationalized the interests of the other operating in Iraq.

 

5.       It is the opinion of many Iraqis and international oil experts that “EPC” and “ERC” contracts are no less than re-privatization methods which technically keep the legal ownership of the oil reserves in the hands of the Iraqi state whilst actually giving full control to the IOCs.

 

6.       All Middle Eastern countries including Iraq nationalized their oil and gas wealth back in the 1970s. This law will make Iraq the first country in the Middle East which re-privatizes its oil and gas wealth for the interests of the IOCs.

 

7.       The draft of the oil law therefore contradicts article 111 of the Iraqi constitution which states that “oil and gas are owned by all the people of Iraq in all the regions and governorates.” It virtually offers the ownership of the oil wealth to the IOCs and not the Iraqi people.

 

8.       The draft law almost marginalizes the role of INOC, since it treats INOC as an equivalent to any IOC when it comes to its strategic role in determining the future of the nation.

 

9.       The draft law favors the welfare of the IOCs more than the economic development and security of the nation, and if approved in this form will harm the future national security, territorial integrity, financial independence, and democratic process of Iraq.

 

10.     This is not the first attempt to privatize Iraqi national oil wealth. The Baathist regime started moving in this direction back in the late 1980s and 1990s. The first step which was taken by the Baathist government was in 1987 when they dissolved INOC. This was followed by negotiations with several international oil companies, including western ones such as French companies, as well as eastern oil companies such as the Russian and Chinese.

 

However, due to the sanctions that were imposed on Iraq, the Baathist regime succeeded only in three such attempts to re-privatize the oil industry between 1997 and 2000. Two PSA agreements were signed with the Russians. This includes the 1997 twenty three year agreement with the Russian oil company, Lukoil, for the development of the West Qurna-2 giant oil field. The third PSA agreement was signed in 2000 with the Chinese National Oil Company.

 

 

Munir Chalabi is an Iraqi political analyst living in UK.

 

Leave a comment