Iraq's Oil Law: Parsing the Fine Print

Abstract

In May 2007, a draft Oil and Gas Law was sent by the Iraqi cabinet to Parliament, and according to government plans, it was to have been passed into law by the end of May. The law faces strong popular, technocratic, and political resistance indeed in early June, the new Iraqi military was in the southern oilfields with a warrant to arrest leaders of the Iraq Federation of Oil Unions who oppose core sections of the law and who demand that no law is passed without consultation with civil society and themselves as principal elements within it. Parliament subsequently went into summer recess without considering the draft. As it stands, the law would represent a momentous shift in state policy and a reversal of measures begun in Iraq as far back as 1961 which culminated in the nationalization of the oil industry in 1972-75. It is also a departure from practices that have been universal in the major oil-exporting countries since the 1970s whereby resources are publicly owned and production operations are mainly carried out by state-owned companies and managed nationally. In all these cases, oil policy is part of a broader national economic policy and the oil sector is intended to be integrated with the rest of the economy in ways that go beyond its financial contributions. In permitting long-term contracts with international oil companies (iocs) whereby foreign companies will control and manage Iraq's oil resources for up to 25 years, the draft law is a fundamental reversal of previous policies, not only of the ousted Ba'ath regime, but of an erstwhile national consensus. This essay examines the draft Oil and Gas Law, focusing on the web of interests driving its formulation and the ideological underpinnings upon which it is based. The main argument put forward is that the law is weak on economic rationale and will serve to deepen ethnic and sectarian forms of economic and political organization, solidifying and calcifying communal factions by moving away from nationallybased control of the oil economy to a regionally and locally controlled oil industry. In this respect, the new law does not only promise to shift the relationship between the public and private sectors, and between national and foreign companies, but it would also fundamentally alter the relationship between the central government and the regions and provinces. The law also threatens to unleash rapid and uncontrolled development of oil production without a program to diversify the economy or guarantee effective arrangements for the proper use of revenues.