The Possibility of Nationalization by the Kurdistan Regional Government of Iraq under the Light of Signed Petroleum Contracts and Establishment of Kurdistan National Oil Company (KNOC)

Abstract

In the past 20 years, Kurdistan Regional Government (KRG) of Iraq has signed hundreds of Production Sharing Contracts with many international oil companies to expand investment and develop its oil sector. According to the applicable laws in the region, in particular Oil and Gas Law No.22 of 2007, government shall work to establish Kurdistan National Oil Company (KNOC) to take charge of petroleum operations. Meanwhile, according to the same law, the duration of petroleum production sharing contracts shall not exceed 20 years with the possibility of five years extension. Despite the fact that KRG is abided to many legal obligations to share the produced oil under production sharing contracts, there is always a question of whether KRG will be able to administer its oil industry and what will be the future of these oil contracts? This paper argues that KRG cannot nationalize (by appropriating the whole oil industry and assets of foreign oil companies) its petroleum sector even after the establishment of KNOC as there are many legal terms preventing it from nationalizing the oil industry besides the lack of technical ability to run the sector without the direct support from foreign oil companies. Moreover, the paper also discusses different possibilities after the end of oil contracts with foreign international companies; Does KRG continue with the current contractual form or it will shift to other forms of contract such as service contract to develop oil industry in the region? It suggests that the best practice for the government is to institutionalize its oil sector with receiving direct support from oil companies. The establishment of KNOC is considered to be an effective step towards institutionalization of oil sector in the Iraqi Kurdistan Region.