Al Hayat - 03 October, 2011
Author: Walid Khadduri
Today, the Iraqi oil industry is going through a crucial phase with big implications for the economic and political future of the country. For one thing, there are more than 50 contracts in place for the development of oil fields, signed with international oil companies. These include long-term service agreements signed by the Federal Ministry of Oil, and production agreements signed by the oil ministry in the Kurdistan Region, in addition to exploration and development contracts expected to be signed next year. This would place Iraq, should these contracts be implemented, among the world's three largest oil producing countries before the end of the present decade.
There are different views regarding the level of sustainable oil output that Iraq will actually reach. In fact, the official position sets it at 12 million barrels per day by mid-decade, compared to 2.5 million barrels per day at present. However, there are some who question the feasibility of such an output, especially as no other country has managed so far to increase its production by that much in the space of such a timeframe. This is not to mention continued lax security and weak administrative system in the country, and the estimates by officials and pundits who put this output at nine, eight or even six million barrels of oil per day.
There are persistent attempts to pass legislations on oil and gas, meanwhile, and draft laws in this regard. In February 2007, the government transmitted the first draft law [to the parliament], but the political parties have yet to agree on a specific formulation. The essence of the difference between these draft laws revolves around the form of the political system in the country in the future, and not just the way the oil industry should be managed. For instance, the Kurdish bloc and its allies are demanding a law that takes into account the federal system in the country, which means that the Federal Ministry of Oil in Baghdad would not be responsible for the oil industry in the entire country. This leaves broad powers to the regions and provinces in drafting petroleum policies. Of course, this approach in managing the oil industry is a trend unknown in either Iraq or the region.
The second draft law, which calls to leave the petroleum policy and its implementation as the responsibility of the ministry in Baghdad, is cause for concern for some, as this would mean continued dominance by the central authorities over oil revenues without supervision, in addition to the security and military institutions, something that may lead to the emergence of powerful dictatorships. Furthermore, some object to continuing to enforce the older oil laws, as these give very extensive powers to the Minister of Oil. There are also those who want to reduce the powers of the Ministry of Oil, rendering it a regulatory body tasked with oversight, rather than an institution that executes projects as it was and as still is.
Some fear that failure to reach a consensual law that would satisfy all parties, especially the Kurds, may see the differences over oil leading to the partitioning of Iraq. Differences over the oil and gas law continue, while the oil and energy committee in the parliament has detailed out the points agreed upon in three drafts, pending an agreement among the political blocs to help reach a compromise.
The committee may indeed reach a consensual solution, but at what expense, especially in light of the differences between the political forces? The concern here is that a final agreement may be reached at the expense of the ‘professionalism’ of the law, in order to appease this party or that, as happened when the constitution, which is now a key factor in current Iraqi disputes was ‘cooked’.
The Iraqi cabinet has approved a ‘central’ draft law, while the oil committee is introducing a different bill, calling for decentralization and reduced powers for the Ministry of Oil. Negotiations are currently underway among the political factions in order to reach a settlement that is satisfactory for all parties, despite the difficulty of this and the primary concern that this may bring about a 'vague' law containing many contradictions on par with those present in the Constitution.
These important developments at the level of the oil industry come in conjunction with a rampant 'culture of corruption' that is among the worst in the world, according to the reports released by relevant organizations (The International Crisis Group has recently warned that widespread corruption threatens to undermine the significant progress Iraq has made toward reducing violence and strengthening state institutions.) This is not to mention ongoing terrorist attacks targeting Iraqis and the weak administrative branch of the state. In a conversation with a petroleum official in a neighboring Arab country, the head of a major oil company operating in Iraq said that he spends most of his time now, not in managing his company, but in lobbying Iraqi government departments to issue visas for the employees of his company to enter Iraq and help in the development of oil fields included in the contracts.
*. Mr. Khadduri is a consultant for MEES Oil & Gas (MeesEnergy)
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