Iraq and Gulf Analysis

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

Iraq Inches Closer to Oil Legislation Deal but Key Issues Remain

Posted by Reidar Visser on Saturday, 23 June 2007 15:31

On 21 June 2007 in the evening, the Kurdistan Regional Government made public the draft law for financial revenues which has been negotiated with the central government in Baghdad and which will form part of a wider package of oil-related legislation also to include laws for the administration and organisation of the oil sector and foreign investment (“the oil law”), the reorganisation of the oil ministry, as well as the reconstitution of the Iraq National Oil Company (INOC).

Until now, the focus has been on the “oil law” itself, of which a final draft was leaked in March this year. This law should since have been presented to parliament but negotiations have stalled, mainly due to differences between the Kurds and Baghdad over which fields should be defined as open for foreign investment – where the Kurds are pressing for an enhanced foreign role.

This new draft is on a different track, mainly relating to revenue-sharing. What it does with regard to the centre-periphery balance in the Iraqi federation can be summarised as follows:

· It pools all the country’s financial income – not only from oil but also from taxes raised and external loans etc. – into two central accounts (one “external”, including all oil revenue, another “internal, for taxes and fees)

· It identifies two areas where the central government can make deductions from these accounts: federal spending, as well as a “future fund”

· The remaining funds are to be divided between the Kurdistan Region (which, pending a census, will receive 17%) and the governorates not organised into a region (which will receive a share according to their “population density”)

· There will be peripheral dominance of the commission charged with oversight of the funds, but there will be no distinction between regions and existing governorates and hence no incentive to federalise (in contrast to the “oil law” where such an incentive exists)

· As with many of the laws of today’s Iraq, there are obvious areas that need more detailed legislation or where ambiguities may arise (e.g. the law for the future fund and conflicts between regions and central government). In these contexts, the absence of a functioning constitutional court represents an acute problem, and the text of the law reflects this problem by partially referring to the constitution but also proposing certain ad hoc rules of its own.

The language of the law clearly demonstrates that above all this has been a bilateral negotiation process between Arbil and Baghdad, and the Kurdish position is interesting: on the one hand they have ensured a theoretical regional quota for every dinar that goes into the state coffers (i.e. not only oil, but also taxes – possibly in anticipation of changes to the constitution that could grant taxation powers to the central government); on the other hand they have also agreed to two headings under which deductions from the total income can be made before the distribution of revenue is initiated. In this way, the law should give the Kurds a stake in maintaining a functioning central government and a working relationship with Baghdad, and it is only to be hoped that a similar attitude should prevail also in the stalled negotiations over the oil law itself.

So far external actors like the United States have focused more on revenue-sharing than on the organisation of the oil sector. But whilst Washington may find what it seeks in this part of the oil package, many Iraqis are more interested in adjustments in a more centrist direction with regard to the oil law itself (concerning the organisation of the oil sector) – or may wish for more fundamental changes to the overall constitutional framework before signing up for any fateful decisions concerning the future wealth of their country. The latest reports on the constitutional revision process is that yesterday’s deadline for a report to be presented to parliament has passed and that there is talk of further postponement.

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