Who Needs an Iraqi Oil Law?
Iraq has become OPEC’s number-two oil exporter, but lacks a national oil law to help unify markets, reduce investor risks and promote future energy development. Denise Natali writes that although Baghdad and Erbil have much to gain without a law, putting negotiations off only further embed Iraq's energy sector in territorial and political issues.
Although Iraq is expanding its energy sector and has become OPEC’s number-two oil exporter, it still does not have a national hydrocarbons law. To many, that law is essential to help unify northern and southern markets, reduce investor risks and attract the foreign capital and expertise needed for future energy development.
Still, Baghdad and Erbil have much to gain without a law, at least in the medium term. Legal and political ambiguity has allowed both sides to postpone decisions on key issues, consolidate power and leverage and profit financially from undisclosed revenues and ongoing investment. Instead of the negotiation of an oil law, what is more likely is a continuation of the status quo, at least until international oil company (IOC) payments come due or a game-changing event demands a compromise.
Indeed, from an industry perspective, an oil law is needed to replace the numerous antiquated and contradictory laws that define Iraq’s energy sector and sow tension and fragmentation across the country. The application of Saddam-era oil legislation, the 2005 constitution and the Kurdistan Regional Government’s (KRG) hydrocarbons law has led to vastly different interpretations and guidelines for energy development by Baghdad, the KRG and provincial administrations. It has also frustrated Iraq’s energy potential. Bottlenecks are rampant in everything from infrastructure development to auditing, which prevent regular payment and execution of projects.
Yet Baghdad continues to advance its energy and political goals without an oil law. Even though the central government has lost key IOCs to the Kurdish north, it will likely seek national oil companies (NOCs) to exploit the southern fields without sacrificing its commitment to state sovereignty over natural resources. Rising NOC influence, emergent resource nationalism and industry trends toward technical-sharing agreements over production-sharing contracts have further enhanced Baghdad’s centrist position. Rather than compromise on a law, the central government has focused its attention on consolidating its power base and establishing a petro-dollar law that can help Iraqi Prime Minister Nouri al-Maliki gain support from oil-producing provinces, namely Basra.
