Iraq and Gulf Analysis

Maliki Capitulates on the Kurdish Oil Deals

Posted by Reidar Visser on Saturday, 5 February 2011 16:04

Comments to AFP by Iraqi Prime Minister Nuri al-Maliki today on the oil deals signed by the Kurds are nothing short of sensational. That exports from the Kurdistan fields will go ahead has been rumoured for some time, but the more crucial point is the clear assertion by Maliki that the contracts signed by the Kurds with foreign companies will be honoured.

To appreciate the extent of the change of Maliki’s position, one needs only remember the vehement criticism of these bilateral deals by his point men on energy issues like Hussain al-Shahristani and Abd al-Hadi al-Hassani. It was this kind of opposition that led to the breakdown of the first export attempt back in summer 2009. In fact, just weeks ago, oil ministry officials were adamant that even if the exports were to be resumed, costs only (and not profit) were to be paid to the operating foreign companies by the central government.

In terms of the perennial debate about the constitutional right of provincial entities to sign contracts without reference to Baghdad, Maliki appears to sidestep the question somewhat by offering an ad hoc justification to the effect that oil drilling in the Kurdish areas is technically more difficult than in the south and for this reason it is permissible to accord greater profits to the companies that invest in the north than those operating in the south (where technical service contracts and more modest per-barrel remuneration have been the norm for foreign companies dealing with Baghdad). In this way, it looks as if the affair has been dressed up as the oil ministry “recognising” the deals because of the special geological challenges presented by the Kurdistan region, but it still begs the question of whether any deal signed by the Kurds in the future, regardless of profits etc., will automatically be recognised. The question is important, because according to the constitution, existing governorates can do exactly the same as federal regions as far as oil is concerned, and the issue of bilateral energy deals between governorates and foreign companies therefore forces its way onto the agenda as a potential domino effect that could gradually make Baghdad less influential in the energy sector (and, arguably, in governing the country as a whole). What if an existing governorate can reiterate the Kurdish argument about having a particularly challenging environment for drilling oil or gas?

The political dynamic that has enabled these development has its roots in late 2009, when it became increasingly clear that Nuri al-Maliki was failing in an attempt to turn his State of Law coalition into a truly national political entity with appeal beyond the Shiite-majority areas of Iraq. Further weakened by the de-Baathification issue and results in the 7 March 2010 elections that were worse than he had hoped for, he needed both Iranian and Kurdish support to clinch a second nomination and to form the government. The Iraqiyya component in the government that was declared in late December was surprisingly strong and the Kurdish one comparatively weak, but Maliki has since come under fire for issues such as attaching the independent commissions to the executive, prompting protests from both the Kurds and Iraqiyya and even a surprise initiative to establish a new federal supreme court. In this kind of situation he is giving concessions to the Kurds even though they alone don’t have the votes to keep him in office. These developments are also a major defeat for his oil minister, Shahristani, who was unable to ramp up short-term production in the south and thereby became dependent upon comparatively modestly sized exports from the north while he is waiting for his own string of deals with foreign companies to come to fruition.

The big question is how Iraqiyya will react, since its constituencies are critical of the Kurdish oil deals and concessions to the Kurdistan Regional Government in disputed questions generally. In that kind of perspective, the logical thing for it would be to withdraw from government and focus instead on an opposition role headed by the speaker of parliament, Usama al-Nujayfi (Adnan al-Janabi of Iraqiyya also won the presidency of the parliamentary oil and gas committee today). However it does seem its members are more concerned with more Byzantine ways of seeking power in government, including vice presidencies (Hashemi) and strategic policy councils (Allawi). In fact, Iraqiyya is rumoured to be asking the Kurds for help in both of these issues, signifying the extent to which Arbil has managed to come out on top in the latest developments despite a somewhat adverse point of departure. At the same time, these latest developments mark a triumph for a primitive, identity-oriented and Balkans-inspired political agenda of potentially destructive ethno-nationalism that many Iraqis had been hoping was on its way out.

15 Responses to “Maliki Capitulates on the Kurdish Oil Deals”

  1. bb said

    “The question is important, because according to the constitution, existing governorates can do exactly the same as federal regions as far as oil is concerned,”

    What do you mean “existing governorates”? Can an existing governorate really go off and negotiate an oil deal on its own? Or does it have to first undergo a lengthy process of establishing itself as a region via a referendum?

    “In that kind of perspective, the logical thing for it would be to withdraw from government and focus instead on an opposition role headed by the speaker of parliament, Usama al-Nujayfi”

    In what parliamentary democracies does the leader of the Opposition also hold the position of Speaker of the parliament?

  2. Reidar Visser said

    Bb, I have written extensively on this in the past and it is too complex to go into in detail here. But briefly, yes, this is an often-misunderstood aspect of Iraqi federalism: According to article 115 federal regions AND governorates not organised in a region (i.e. ordinary, normal governorates like Basra and Wasit) have all the powers not specifically given to the central government. The constitution in inconsistent in that it specifically mentions a right to form regional guards for the federal regions (“on top of” the residual powers, which does not make sense), but as far as oil and energy are concerned the two administrative categories are on exactly the same footing. That’s why it is interesting that Maliki uses the “drilling environment” argument to justify his acceptance of the deals. Presumably there are “future fields” in some of the governorates where this kind of technical argument may apply as a precedent.

    Regarding the speakership, there is nothing in the Iraqi constitution that prevents Nujayfi from continuing as speaker even if Iraqiyya withdraws from parliament. Indeed, it seems unclear under the current bylaws how the parliament would be able to get rid of him in a constitutional way unless he did something criminal. Note also that Mahmud al-Mashhadani continued as speaker even as Tawafuq withdrew ministers in 2007; when he was forced out in December 2008 it was done in a murky way without any parliamentary procedure – he was simply intimidated and eventually decided to go.

  3. Charly M said

    Hello Reidar,
    A very interesting write-up – thanks.
    I have one question though that has arisen as a result of other press coverage that quotes you – pasted in italics below.
    In this report it claims that al-Maliki was referring specifically to the 2 companies currently producing in Kurdistan, rather than to all foreign oil companies operating there.
    Al-Maliki has previously said in public that these 2 contracts are not a problem anyway as they were signed before the draft Oil & Gas law, so I’m wondering why he would then come up with this new explanation of why contracts are now acceptable if he is only referring to these 2 companies ?
    It looks to me as he’s referring to all KRG contracts, but I would like to hear your opinion on this.
    Regards, Charly M.

    In the interview, Maliki said Iraq’s oil ministry “accepted these contracts because the nature of the extraction in Kurdistan is different from (the southern province of) Basra,” referring to two production-sharing contracts signed with Norway’s DNO and Turkey’s Genel Enerji.

  4. Reidar Visser said

    Charly, I double-checked that when I spoke to the AFP later yesterday and they were pretty clear that Maliki had been talking about Tawke and Taq Taq. However, as you say, it would have been less trouble for Maliki to recognise those two Kurdish contracts under article 141 and leave it at that, even though Shahristani has refused to do so ever since 2006. But now he seems to be going further than that, since the argument about the drilling environment is a more general principle. I see no reason why he should have made that point unless he intended to recognise a greater number of Kurdish contracts.

    By the way, as far as I read 141 it is the seating of the first government pursuant to the constitution, i.e. May 2006, that is the relevant cut-off point for the automatic validity of contracts (unless they are in conflict with the constitution), not the end of the CPA period (which Galbraith thought would matter enormously and therefore made a big point of having DNO sign the contract before end of June 2004), nor the creation of an oil and gas draft law.

    Do you by any chance have the link where Maliki recognised those two contracts as having a special status? I think Shahristani continued to reject that interpretation until very recently, citing incompatibility with the constitution.

  5. Charly M said

    Many thanks for confirming, and I think you’re correct regarding May 2006 being the cutoff point.
    As you say though, why unnecessarily raise a completely new general principle that could apply to all operators in Kurdistan if the intention is that it should only apply to DNO/Genel ?

    And apologies both that I don’t have the link and that it was in fact Al-Shahristani who said this and not Maliki. It was during an interview on the sidelines of an oil conference, maybe in London, but I have searched youtube and google for it without success. It was most likely posted as a link in an investor discussion forum, but with literally hundreds of thousands of posts and no effective search functionality I’m afraid it’s buried now.

  6. Tore said

    Reidar and Charly, here is one link from 2007:

    “Shahristani said only the first four deals, struck prior to reaching agreement on a federal oil law, would carry any water with him. They would be reviewed by a federal oil and gas council established by the law to ensure they comply with it.”

    He has made similar statements a number of times.

  7. Reidar Visser said

    Thanks. I guess it is possible that Shahristani may opt to say something to the effect that they have “evaluated” those four contracts and concluded along the lines Maliki said (i.e. the contracts are OK because the drilling environment is more challenging). That would create a semblance of central-government participation even though in reality the Kurds have done exactly as they pleased.

    I still don’t understand why Shahristani is/was making a point of the introduction of the draft oil/gas law as a particularly critical juncture. If there is an argument for the special status of the DNO/Genel deals in the constitution, I would imagine it would have to be article 141, in which case the question of compliance with the constitution itself would seem to be the key point of dispute.

  8. Rafiq said

    Hi Reidar – This issue of Shahristani’s “differentiation” between “DNO/Genel” and the rest of the contracts is because they signed their deals BEFORE the February 2007 “agreement” on the hydrocarbon law between Irbil and Baghdad. In Shahristani’s view, these contracts (which also include Petoil at Bina Bawi and Western Zagros at Kalaar Bawanoor)took place in what was a slightly legislative grey period and as such do not represent the flagrant rejection of federal authority that the later contracts do.

  9. Reidar Visser said

    Rafiq, thanks for that, I should perhaps have been clearer: I am wondering what is the constitutional basis for using the creation of a draft law in 2007 to constitute some kind of critical point regarding the validity of the contract? It just seems like an arbitrary point in time. That’s why I can understand those who argue for the validity of pre-2006 contracts (article 141 of the constitution says agreements already signed by the Kurds are valid and the constitution came into effect with the seating of the Maliki govt in May 2006) even though I also understand how the oil ministry is rejecting them on grounds that they don’t live up to the last criterion of 141: Compatibility with the constitution itself (since the central government was neither consulted nor informed, which seems imperative under article 112).

  10. Kermanshahi said

    I think this was inevitable, actually. It is clear that when al-Maliki formed a government with the Kurds he was going to comrpomise on some issues, how far, we don’t know and economical concessions are worth a lot less to al-Maliki than actually loosing some of his power (either through an enhanced Presidency or loosing Kerkuk), which is the thing he seeks most.

  11. Reidar Visser said

    Kermanshahi, I agree Maliki is personally probably more concerned about giving up Kirkuk. But as today’s report by Reuters shows, he may have forgotten that he has got a big government with many ministers and deputy ministers, and even his fellow Shiite Islamists do not all agree with him on the oil deals it seems.

  12. bb said

    Thanks Reidar. Sec 115 of the constitution notwithstanding (there is also 112-114) it is surely a long bow to suggest that 30-member governorate provincial council would have the authority to negotiate and conclude an oil deal on its own, let alone over-ride federal authority.

    Mashhadani continued as Speaker, but he was NOT the Leader of the Opposition at the same time (or at any time, as far as am aware).

  13. Reidar Visser said

    Bb, the point is simply this: The bow is just as long for a federal region as it is for a governorate. Show me a constitutional clause that gives the federal regions greater power in oil matters than governorates. That’s not in 112 or 114. As said earlier, a more plausible reading of 112 is that no one, governorate or region, can sign an oil deal without reference to Bagdhad; I’m just making the point that if Arbil can, Amara can.

    The concept of “leader of the opposition” may exist in Australia but it has no place in the Iraqi constitution. At any rate, Mashhadani had a close affiliation with the 22 July front, the closest you had to an opposition movement at the time.

  14. bb said

    Which international oil companies do you think would sign up to a deal with a 30 member provincial council?

  15. Reidar Visser said

    Bb, the same kind of companies that were happy to circumvent Baghdad in cutting deals with the KRG, i.e. “small-oil” companies. In the case of the American ones (Marathon etc), they did so despite an explicit warning from the US State Department that such bilateral deals were risky and unadvisable.

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