Thursday, May 31, 2007

Iraq's Hydrocarbon Law

Amongst the benchmarks in the supplemental appropriations bill for 2007, section 1904(b) states, “On or before October 1st, 2007, the President shall certify to the Congress that the Government of Iraq has enacted a broadly accepted hydro-carbon law that equitably shares oil revenues among all Iraqis.”

“Oil” was a catchword before the Iraq war even began. So what do we know about Iraqi oil and what can we say about the significance of this hydrocarbon law in terms of Iraq and its people, and the oil industry as a whole?

Iraq’s oil sector was nationalized in 1972 and has since been a source of national pride for everyone in the country. Privatization may seem like a good idea in the U.S., but it's not a real option for Iraq at this point. The oil law on the table - actually the first of four - creates a national framework for managing Iraq’s oil sector under the new regime.

Yahia Said, Middle East and North Africa regional director at Revenue Watch Institute, a nonprofit organization monitoring Iraq's oil industry, said in a PBS interview: “This is the first application of Iraq's federal constitution. It will show the way of how the Iraqi union will be structured and how it will work into the future.” The law centralizes management over the oil sector in the Iraqi government, rather than dividing it among Sunni, Shi’a and Kurds. This retains the nationalist flavor of the oil sector.

The remaining three laws will tackle a much more complex and controversial issue: distribution of oil revenue. The central and northwestern Sunni-dominated regions of Iraq contain little oil, so Sunnis fear they will miss out on profits. To the north lies the oil-rich city of Kirkuk, which is mixed Kurdish and Arab. Kurdish leaders have threatened to annex Kirkuk and withdraw from Iraq if they are not given their own fair share of oil revenue.

An equitable law would signify reconciliation and unity between Iraq’s various religious and ethnic groups at the national level. Iraq needs to create these laws carefully and with benchmarks in mind. EPIC has argued in favor of such benchmarks and we will continue to follow the progress of Iraq’s oil sector now and in the future.


Sam said...

The oil revenue should first be allocated to the victims in Iraq of the conflict and then the infra-structure, e.g., electricity, schools etc.

Anonymous said...

As it currently stands, how are the oil revenues allocated? Are their any organized proposals for how what will happen in October?

Chris Breuer said...

Anonymous, information about current oil revenue allocations are difficult to retrieve. There are a number of reasons for this. According to the International Advisory and Monitoring Board for Iraq, the country lacks a comprehensive system of oil metering, which is among the more essential tools for managing the oil. Second, barter transactions in the oil sector are not recorded. Third, the Development Fund for Iraq (DFI), now managed by the Iraqi government, suffers from weak controls in the spending ministries. As far as October is concerned, I've only seen the most broadly outlined proposals that essentially argue in favor of equitable revenue distribution.

Anonymous said...

This is definitely one major issue that has to be on the minds of all factions. Think there's a civil war now, it will be much worse if any one feels slighted when the plans are final.

Emily Stivers said...

I think the solution will have to involve slightly slighting all sides. To wit:

As children, my siblings and I used to constantly fight over who got the most ice cream. But even though I never got as much as I wanted, I felt satisfied as long as my siblings were also complaining that they didn't get enough. As long as "his piece is bigger than mine!" was answered with "no, her piece is bigger than mine!", it all worked out (albeit grudgingly).

Similarly, a solution to Iraq's oil revenue distribution will have to make every side say "well I'm not happy, but at least my rivals are not happy either." The only way for everybody to win is for everybody to lose.

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