Weapons of Mass Destruction (WMD)

Backgrounder: Why Iraqis Cannot Agree on an Oil Law

Council on Foreign Relations

Author: Lionel Beehner, Staff Writer
May 9, 2007


Disagreements over oil and revenue sharing threaten to unravel hopes for a political breakthrough and national reconciliation in Iraq. A draft oil law has drawn criticisms from Iraq’s Sunnis, who prefer a stronger role for the central government, and from Kurds, who prefer a stronger role for the regional authorities. The majority Shiites have sought to mollify the Sunnis by keeping control of Iraq’s oil sector in Baghdad, not the provinces. The role of outside investors, as well as the classification of old versus new oil fields, also divides Iraqi politicians. Oil, of course, is the country’s most vital resource, accounting for 95 percent of government revenue. Yet output has fallen well short of Baghdad’s production targets, mostly due to corruption, poor security, and lack of investment.

What is contained in the draft oil bill?

The bill drafted in February gives overall planning responsibilities to the federal oil and gas council and the Iraq National Oil Company (INOC), a state-run company to be established once the bill is passed. Representatives from regional authorities can be part of the council and sit on INOC’s board. The bill also divvies up revenue from both existing and future oil fields based on regional population. However, four annexes introduced in recent weeks by the Iraqi oil minister, Hussein al-Shahristani, a Shiite, cede greater control of management of current oil fields and existing contracts to INOC.

The Kurds argue these annexes were drafted without their input and violate the constitution, which states that Baghdad, together with regional authorities, will determine the management of untapped fields. According to the annexes, 93 percent of Iraq’s proven petroleum reserves will be under the purview of INOC, leaving just 7 percent to regional authorities.

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