Wednesday, February 28, 2007

Oil and Gas Law: Behind the "agreement"

(Subsequent note: In the piece that follows, I put a lot of weight, possibly too much weight, on a single sentence that Othman reportedly said to the reporter, and while it seems clear that Khalilzad somehow made this "agreement" finally happen, the exact nature of what Othman was talking about should probably be taken with a grain of salt. See the first comment).

Al-Hayat provides an explanation how the Americans (and the British) finally got the Iraqi cabinet to agree on a draft oil law, the point being that main unresolved issue (as far as the draft text of the law is concerned) had to do with the competing claims to control over oil and gas extraction contracts in Kurdistan, by the regional government on the one side, and the central government on the other. The Al-Hayat reporter quotes Mahmoud Othman, a Kurdish member of the national parliament, but not a member of either of the two big Kurdish parties, on how this was settled: US ambassador Khalilzad, on his latest trip to the region, proposed that they simply agree between them that half of the contracts would be under the auspices of the regional government, and the other half under the auspices of the central government. The implication is the text of the law can be left vague, but that there is a side-understanding between the US and the Kurds, to the effect that they will split oil jurisdiction 50-50 between the Kurdish regional government, and the US-controlled central government. Here is the text of what Al-Hayat says Othman said:
Kurdish deputy Mahmoud Othman said "the British and the Americans, who were in a hurry to decide on an oil and gas law, had a major role in convincing the Kurds to accept [this version]"... Othman explained some of the details of the process, that led to the council of Ministers approving this after so many months of disagreement between the central government and the regional government. The British and the Americans, who were bound and determined to accelerate the process of deciding on an oil and gas law, had a major role in convincing the Kurdish parties to accept this, after intensive discussions between the parties leading to haggling about exploitation, contract-management, and distribution. Othman added: "The latest visit by US ambassador Khalilzad to [the Kurdish region] focused on convincing the Kurds to accept [the current version] after promising them that the new law would protect Kurdish interests," and Othman explained: "The Kurds had wanted the authority to enter into contracts for oil and exploitation and the granting of operating permits to corporations, on a par with the authority of the central government [elsewhere in Iraq], while the Baghdad government wanted to have a presence in overseeing contracts [in Kurdistan] equal to that of the the Kurds." Othman said: "That was finally agreed, but only after an agreement that one-half of the contracts signed would be within the jurisdiction of the Region of Kurdistan".
In other words, if I am reading this right, where the text of the law calls for joint participation by the Baghdad and the Kurds in contract-management for properties in Kurdistan, the side-agreement arranged by Khalilzad, which finally brought the Kurds to agreement, was that the contracts would be split 50-50, with one side controlling one-half of them, and the other side the other half. Naturally it would be impossible to include something like that in law, for one thing because of the impossibility of designating which contracts are under the control of which government, and for another thing because it would cast doubt on the idea of genuinely shared jurisdiction.

On another point, the Al-Hayat reporter quotes a spokesman for the Iraqi Accord Front, the biggest Sunni bloc in the national parliament, Salim Abdullah, who said: "Current circumstances are not appropriate for the adoption of an oil and gas law...We look on this law with skepticism and concern, in the light of the continuing security situation, which doesn't help in establishing a low like this one, particularly since it concerns the exploitation of oil, which is the most important element in Iraqi national income". He added: "We in the Iraqi Accord Front have a feeling foreign corporations had a role in deciding on this in their own interests, and we reject what the law suggests by way of privatization of the oil sector and transferrence of its management to foreign exploitation companies." And he added that revenue distribution should be free of sectarianism.

And the reporter quotes a member of the Oil Gas and Natural Resources committee of the national parliament who said there will not be quick passage of in parliament, "because of existing differences between the political blocs..."


Anonymous Anonymous said...

A very interesting report Badger. I have a hard time though to see how such a deal solves anything, and secondly how the Kurds have come to move away from their central demand of negotiating contract within their own region themselves. Firstly, which contracts are to be managed 50-50? Contracts in the Federal Region of Kurdistan (FRK)? What kind of jurisdiction could the central government claim to have after the law is passed even if such a side-deal exists? How will they enforce a side-deal clearly outside both the law and the constitution as seen from the Kurds?

I think, however, it is right that Kahalilzad forced through an agreement, but that has mainly to do with him leaving his position and in need for something to show for his efforts. In addition it gives the bosses back home something to celebrate. To me it seems that they simply have used the trick from the constitution: deferral. By keeping the text ambiguous in the necessary places and by deferring important issues to annexes and to secondary laws (details of revenue distribution, tax and the establishment of Iraq National Oil Company), they have managed to pass a law in the Government. This gives them a law in principle, but a hell of a lot of work in order to have the package that the Kurds demand to have before it is passed through Council of Representatives (in late May according to Bahram Saleh). And I think it will pass, all the big parties are in on it and they were able to pass the law for the Formation of the Regions. But the law will probably be disputed and controversial for a long time.

In this instance, I would direct readers to the KRG statement on the agreement, where the essence of the agreement is in the first paragraph ( : “The Kurdistan Region will voluntarily share some of its Constitutional powers to manage petroleum exploration and development in Kurdistan with the Federal Government. In particular, and in the interests of transparency, the Kurdistan Regional Government (KRG) will permit an independent panel of experts to review the KRG’s petroleum contracts against certain agreed commercial criteria. The KRG will also voluntarily pool all of the petroleum revenues to which it is entitled with all the other regions and governorates. In return, Kurdistan will be guaranteed a share of pooled revenues proportionate to its population. The Kurdistan Regional Government will, of course, retain the power to sign contracts for petroleum exploration and development in the Kurdistan Region.”

This is not shared jurisdiction, this is regional control with certain oversight from Baghdad.

To sum up this lengthy comment: I do not believe this story is correct about such a side-deal. One could speculate that this is spread by Othman to discredidt PUK and KDP towards their own population by portraying them to give away their constitutional rights.

12:42 PM  
Blogger badger said...

Good points. I thought Othman was talking about a deal where Kurdistan keeps full and untrammeled authority for half of the contracts in Kurdistan, the other half being "federal" in the sense of shared-jurisdiction, and only on that basis was there agreement on the text of the law. But on reflection, that's putting a lot of weight on something that wasn't really made crystal-clear. And I guess your main point is that in any event it isn't plausible that Kurdistan would give away that much? Anyway I added a cautionary note to the post.

3:34 PM  
Blogger JHM said...

The Kurdistan Region will voluntarily share some of its Constitutional powers to manage petroleum exploration and development in Kurdistan with the Federal Government.

I wrote M. Othman up chez moi without seeing the full weirdness of the deal. If the Free Kurds talk the language of grace and favour like that, they must consider that what Khalilzad Pasha wants from them is, strictly speaking, "unconstitutional."

5:17 PM  
Anonymous Anonymous said...

If there should be anything to this story at all, it would be that the Kurds are allowed to "adjust" their existing PSAs without Baghdad interference, but that all further agreements are subject to the regulations in the law and to the oversight (although not constitutionally binding, the Kurds would say) of the the new Federal Oil and Gas Council.

And you are right, I do not think the Kurds would give away more than what the statements says with respect to what they consider their constitutional right.

Time has a good article up, especially on the specific of US involvement. The article does however bugle somewhat the PSA issue once more:,8816,1594388,00.html

4:53 AM  
Blogger JHM said...

Since Mr. Raed Jarrar took the trouble to translate the leaked copy of the petroleum bill, I assume he knows what is in it. Between legalese and industy technicalities I can't make much of it on my own.

Here is what he and a coauthor wrote on Tuesday about the implications for neo-Iraqi "constitutionalism" and decentralization, the last section of a longer article:

Democracy and Territorial Integrity

Many Iraqi oil experts are already referring to the draft law as the "Split Iraq Fund," arguing that it facilitates plans for splitting Iraq into three ethnic/religious regions. The experts believe the law undermines the central government and shifts important decision-making and responsibilities to the regional entities. This shift could serve as the foundation for establishing three new independent states, which is the goal of a number of separatist leaders.

The law opens the possibility of the regions taking control of Iraq’s oil, but it also maintains the possibility of the central government retaining control. In fact, the law was written in a vague manner to help ensure passage, a ploy reminiscent of the passage of the Iraqi constitution. There is a significant conflict between the Bush administration and others in Iraq who would like ultimate authority for Iraq’s oil to rest with the central government and those who would like to see the nation split in three. Both groups are powerful in Iraq. Both groups have been mollified, for now, to ensure the law's passage.

But two very different outcomes are possible. If the central government remains the ultimate decision-making authority in Iraq, then the Iraq Federal Oil and Gas Council will exercise power over the regions. And if the regions emerge as the strongest power in Iraq, then the Council could simply become a silent rubber stamp, enforcing the will of the regions. The same lack of clarity exists in Iraq's constitution.

The daily lives of most people in Iraq are overwhelmed with meeting basic needs. They are unaware of the details and full nature of the oil law shortly to be considered in parliament. Their parliamentarians, in turn, have not been included in the debate over the law and were unable to even read the draft until it was leaked on the Internet. Those Iraqis able to make their voices heard on the oil law want more time. They urge postponing a decision until Iraqis have their own sovereign state without a foreign occupation.

Passing this oil law while the political future of Iraq is unclear can only further the existing schisms in the Iraqi government. Forcing its passage will achieve nothing more than an increase in the levels of violence, anger, and instability in Iraq and a prolongation of the U.S. occupation.

I marked one sentence on the principle that great minds think alike, although I myself would have mentioned Khalilzad Pasha by name.

Mr. Jarrar's translation contains earlier language struck out, and Article 27, "Regulations for Petroleum Operations," is a sort of Apotheosis of Zalmay (and the AEI/GOP approach to regulation). Even to list things that might be regulated would be far too dangerously specific, so expungatur!

However, in what's left of the article the drafters accidentally did not strike "Ministry" and insert "Iraq Federal Oil and Gas Council" or "specialized entity" as in other passages. If that revision had not been introduced, the above analysis of the politics would be absurd. So it looks to me as if this must be the essence of the deal struck behind closed doors between the Free Kurd notables and the Ottoman from Crawford: not so much a fifty-fifty split of jurisdiction, as leaving open the possibility that the whole shebang could go either way, as Mr. Jarrar describes.

To formally accept a Greenzonian ministry that could actually interfere in Kurdistan would have been intolerable to the Talabanis and Barzanis. Evidently it does not much matter either way to the militant Republicans. Or so I presume.

But God knows best.

8:22 AM  
Anonymous Anonymous said...

This is a fairly good interpretation of what is in the law with respect to the conflict between regional and federal authority, but there are many potential consequences of this. Certainly, the Iraq-split-in-three seems the least likely if the constitution is followed (cf. the report from Reidar Visser mentioned by Badger).

But it was the constitution that undermined the federal government, and what has happened here is that the central government has failed to reassert itself. That is a distinction of some importance.

As to the linked articles understandig of the more technical sides of the law, that seems more off the mark. I do not have time to go into the details, but I have also seen comments by Raed Jarrar on Democracy Now that was completely off the reservation with respect to what level of foreign control, if any, this law in reality opens up for.

11:46 AM  

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