Iraq’s Oil in Kurdistan still under dispute

Now when U.S. combat troops are slated for withdrawal there is still no federal oil law. The result is that Kurdistan has gone ahead and passed its own oil law and some oil companies have contracts with the Kurds that are not approved by the central government. Baghdad and the Kurdish Regional Government(KRG) constantly argue over how foreign oil companies operating in Kurdistan should be paid.

Not long ago the central government and the KRG agreed that oil from two Kurdish fields could be channeled into the national pipeline that exports oil to the global market through the Turkish port of Ceyhan. This would reverse the central government policy of blocking such shipments. The small foreign companies that have invested millions in Kurdistan found this welcome news. The only alternative way to export is by tanker truck and that is very limited. However there was one important and devastating proviso.

The oil minister warned that any oil that went into the national pipeline would by that very fact become part of Iraq’s exports and the money would go to the central government. Beyond that the ministry also said that receiving the oil did not imply any approval of the contracts signed by foreign oil companies with the KRG. Kurdistan does receive 17 per cent of Iraq’s overall oil revenues however so it could pay foreign companies through that revenue. This is not the sort of agreement that the KRG wanted so the situation remains unresolved unless the KRG decides to be content with simply pooling its own oil with the central government oil and just taking 17 per cent of revenues in return.

The KRG and the central government disagree on interpretation of the Iraq constitution. The KRG believes it has the right to make contracts on its own with foreign companies while the central government believes contracts must be approved by them. The KRG contracts are production sharing contracts and these are much more lucrative than the service contracts that the central government has put up for auction to develop southern fields. However recently Baghdad has indicated it may offer foreign oil companies a share of profits for developing new fields. Baghdad wants to increase production considerably. If it should offer improved profit opportunities the central government may attract investment away from the north so that Kurdistan will lose its advantage. This may finally cause the two sides to agree to an oil law that sets forth the parameters of foreign investment and division of revenues agreeable to the KRG and the central government. But don’t expect it to happen tomorrow!

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