Iraq and Gulf Analysis

An Iraq Blog by a Victim of the Human Rights Crimes of the Norwegian Government

Maliki and the Kurds: An Apparent Fudge on Oil Exports

Posted by Reidar Visser on Thursday, 27 January 2011 15:10

Among the first moves of the new Maliki government has been an agreement with the Kurdistan regional authorities (KRG) to resume oil exports from fields in Kurdistan operated by foreign companies that have cut separate deals with the KRG previously. Exports are supposed to start as early as 1 February.

So far, relatively few details about the agreed arrangements have been revealed. Baghdad has reportedly agreed to lower the minimum export requirement for Kurdistan in the annual budget to 100,000 barrels per day (it was originally 150,000 bpd, which the Kurds found somewhat steep), and unlike the previous attempt at starting export in the summer of 2009, Baghdad will this time pay a “contribution” (musahama) towards covering the expenses of the foreign companies that operate in Kurdistan. So far, the exact size of the payment has not been specified, but according to Asim Jihad of the Iraqi oil ministry it will be paid to the Kurdish regional authorities rather than directly to the foreign companies, and there are certain “barter” elements to the deal as well, including improvements to the refining capacity and electricity supply of Kurdistan plus provision of oil for the local market there.

Thus in legal terms, it seems as if the stalemate regarding the contract status of the foreign companies is continuing as before. The Kurds are reluctant to formally submit the contracts to Baghdad for approval since that would mean not only potential challenges to the contract terms but also cession of what the Kurds believe is their sovereign right to conclude such deals with third parties. Baghdad, for its part, is reluctant to pay the companies that operate in Kurdistan directly according to the contract terms, since that would mean recognising the right of federal authorities to sign deals with foreign companies without coordinating with Baghdad – which in turn would mean that not only federal regions but in fact every governorate across Iraq could do the same thing. Since federal regions and governorates have exactly the same residual rights under article 115 of the constitution, it would be potentially suicidal for the central government to admit a residual power to sign contracts for so-called “future fields” without coordination with Baghdad. Under this kind of permissive scenario, Basra, Maysan and Anbar would suddenly negotiate with foreign companies without reference to Baghdad. It seems far more likely that Baghdad is aiming for a restrictive interpretation of article 112, second, that would require coordination with the oil ministry for all future deals as part of the national “strategic policy” on oil – and instead will opt for for temporary, horse-trading solutions of the kind now agreed with the Kurds in the short term while it is working on boosting its own export capacity, which will still take some years.

Thus unlike what happened in 2009, money will this time be paid from Baghdad to Kurdistan, and presumably the Kurds will then pay the operating companies. The problem for the Kurds is that as long as the contracts are not submitted for review (as opposed to just making them public), Baghdad will continue to pay Arbil with reference to its own assessment of reasonable costs rather than in accordance with the lucrative terms of the contracts. Whether this in the long run is actually good enough for the Kurds – and not least their foreign partners – remains to be seen. Clearly, the foreign companies that operate in Kurdistan are not there in order to do non-profit work forever, and the Kurds will be under pressure to pay them more generously instead of simply compensating them for expenses. Other potential hitches regarding the new arrangements relate to parliamentary oversight: Presumably the compensation payments are to be specified in the annexes to the 2011 budget to be debated in February, and presumably the payments due to be transferred to the Kurdish ministry for natural resources as part of the deal will be subject to parliamentary debate in the Kurdish regional assembly as well, where the PUK and Gorran have a history of asking critical questions about the KDP-led oil policy.

Nonetheless, this deal represents an interesting move for the new Maliki government, where a key question since December 2010 has been whether Maliki will lean more towards the Kurds or Iraqiyya in hammering out his policies. Based on the latest move by Maliki to attach the independent commissions to the government, one can start wondering whether he actually has a viable grand strategy at all. He can afford to alienate either the Kurds or Iraqiyya, but not both at the same time. This holds true for the oil sector as well.

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6 Responses to “Maliki and the Kurds: An Apparent Fudge on Oil Exports”

  1. Salah said

    Reidar,

    Any sings that what’s going on in ME states have some things inside Iraq today?

    have you taken this aspect onboard and what Maliki with his folk doing or they concerned about the raising of the people in neighboring states.

  2. Reidar Visser said

    Salah, seems they think they are immune to this sort of thing… They shouldn’t; it really seems reckless of Maliki to start this quarrel about the independent commission before he has even completed the formation of the next government. True, the Iraqi public stayed patient and quiet during the antics of the “government-formation process”, but at some point even they will have had enough. The new government and parliament haven’t even started on the toughest tasks yet, and probably more hiccups can be expected regarding the Arab summit in March, whether to hold it in Baghdad after all etc.

  3. Salah said

    Thank you Riedar indeed Iraqi may be patient because the miserable state they living are tired but at some stage this not can be all time status.

    Back to Kurd/ Maliki do you have any idea why that last month agreement between Kurd/Malki kept secret

    عثمان يدعو إلى كشف اتفاق اربيل

    http://www.newsabah.com/ar/1915/1/49289/عثمان-يدعو-إلى-كشف-اتفاق-اربيل.htm?tpl=13

  4. Reidar Visser said

    Salah, the agreement referred to in that article does not relate to oil but rather to the trilateral pact between Barzani, Maliki and Allawi that was signed subsequent to their talks in Arbil starting on 8 Nov and leading up to the nomination of Maliki on 11 Nov. It is believed to contain items such as agreement on forming the national council for strategic policy, and it is apparently also used as point of departure for the distribution of ministries and other leading positions.

    It is very interesting nonetheless that Uthman, a Kurd, is calling for its publication.

  5. Kermanshahi said

    Well, al-Maliki is expected to make atleast some concessions to the Kurds. It doesn’t seem he’s willing to do much, thusfar, but if he does nothing at all for the Kurds and instead continues anti-Kurdish policies promoted by his Northern neighbour state aswell as his deputy PM and parliamentary speaker, than this could lead to a rapid deteroiration of relations and likely build up to Kurdistan War 3.

  6. Reidar Visser said

    Remember there are two deputy PMs who are sceptical about the Kurdish oil deals (Mutlak AND Shahristani). Add also to that the fact that the new bloc leader of NA, Jaafari, has a troublesome record when it comes to relations with the Kurd. And add to that Maliki’s apparent preparedness to persevere even with policies that are criticised by both the Kurds, Iraqiyya and some of the NA at the same time (such as attaching the independent institutions to the executive).

    As suggested before, my suspicion is that he is aiming for a foot-dragging strategy. There are so many issues that need urgent resolution and yet today a deputy suggested they could take all February just passing the budget. Tomorrow, according to the official agenda of the parliament, they’ll discuss the independent commissions, which is going to take an awful lot of time before (or rather if) they get to the next item on the agenda, which is a general discussion about the budget (not the second reading of it or the vote itself, both of which are steps that will follow much later).

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