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Backgrounder: Why Iraqis Cannot Agree on an Oil Law

Council on Foreign Relations

Authors: Lionel Beehner
Greg Bruno, Staff Writer

Updated: February 22, 2008

Introduction

Disagreements over oil production, exploration, and revenue sharing threaten to unravel hopes for a political breakthrough and national reconciliation in Iraq. A draft oil law (PDF) has drawn criticism from Iraq’s Sunnis, who prefer a stronger role for the central government, and from Kurds, who prefer a stronger management role for the regional authorities. The majority Shiites have sought to mollify the Sunnis by keeping control of Iraq’s oil sector primarily in Baghdad, not the regional governorates. 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, and revenue generated by it accounted for the government’s entire $41 billion budget (PDF) in 2007. Yet output has fallen short of Baghdad’s production targets, mostly due to corruption, poor security, and lack of investment. Unable or unwilling to wait for a compromise, the Kurdistan Regional Government passed its own oil law (PDF) in mid-2007. The Kurdish government has also entered into dozens of production-sharing contracts with international companies, further straining relations between Kurds and the central government.

The Hydrocarbon Legislation*

The bill drafted in February 2007 gives exploration and production planning responsibilities to a newly created federal oil and gas council. The bill, approved by the Iraqi Cabinet but currently stalled in parliament, also spells out exploration responsibilities of the Iraq National Oil Company (INOC), a state-run company with origins tracing to pre-Saddam Hussein Iraq. The hydrocarbon law does not, however, offer specifics on how the currently inactive INOC would manage Iraq’s national reserves. Those plans are contained in a separate bill that, like the hydrocarbon bill, has stalled amid Iraq’s divided political system.

Read the rest of this article on the cfr.org website.

Copyright 2008 by the Council on Foreign Relations. This material is republished on GlobalSecurity.org with specific permission from the cfr.org. Reprint and republication queries for this article should be directed to cfr.org.