Welcome to Kalamna, the student blog of the Hagop Kevorkian Center for Near Eastern Studies at NYU.

Monday, February 8, 2010

USIP Report on Oil Politics in Iraq

A recent report on oil politics in Iraq was recently brought to my attention. Entitled "Iraq's Oil Politics: Where Agreement Might Be Found", this intriguing report was published by a fellow at the United States Institute of Peace. It chronicles the developments and negotiatations concerning the hydrocarbon legislation that the Bush administration had long championed as a benchmark for Iraqi political reconciliation, and tries to explain why these negotiations concerning Iraq's oil resources have reached a stalemate.

Given oil's status as Iraq's primary export and the fact that more than 90% of public expenditures are financed by oil monies, finding an acceptable formula for distributing Iraq's oil revenues was always going to be a key issue. Yet the underlying approach pursued by the Bush administration focused more on investment and contracting, and less on an acceptable formula and respectable mechanism for distributing oil revenues. This approach is embodies in the hydrocarbon law, which has gotten nowhere so far and seems dead on arrival in the Iraqi parliament.

The reason this hydrocarbon law (which focuses almost exclusively on oil contracting and investment) is so problematic is because Iraqis disagree vehemently over who should have the authority to sign oil contracts. Should it be the sole right of the central government in Baghdad? Can the Kurdistan Regional Government (KRG) sign them too? If the Shia were to create a super-region in the south (a very real possibility up until recently), would they be able to award oil contracts separate from Baghdad? The possibility of regional governments overriding the central government in terms of control over the state's main source of funds could lead to the unraveling of Iraq - a prospect that made Sunnis and more nationalist Shia anxy over decentralizing power.

Moreover, part of the problem lies with the Iraqi Constitution. The constitution is purposefully vague about whether regional or national law has primacy over signing oil contracts; the Kurds made sure it was written that way. This gives them wiggle room to sign their own contracts in the future. They have indeed already signed 25 contracts with foreign firms for production in KRG-controlled territory.

In short, Iraqi Arabs are demanding that an agreement on revenue sharing include constitutional amendments that prohibit the Kurds from having the best of both worlds - being alotted 17% of Iraq's oil revenues in addition to signing their own contracts. In the Iraqi Arabs vision, the Kurds would simply be guaranteed 17% of oil revenues, and contracts would be signed with Baghdad alone. This is a formula highly desired by the Kurds, since the current arrangement of being alotted 17% of the budget can capricious and arbitrary. (During the 2008 budget negotiations, there was a concerted attempt by Sunni and Shia Arab MPs to cut the KRG's share from 17% to 13%). Instead, the Kurds would like to see a revenue-sharing law that would provide the KRG with a transparent and automatic mechanism to transfer its share of oil revenues rather than continuing to rely on the budgetary process.

So, both Kurds and Arabs agree that a just and equitable revenue-sharing law is needed. The problem is that the Arabs want constitutional amendments that will solidify the primacy of federal law over regional law; the revenue-sharing mechanism won't work if an entire region can just opt out and start signing its own contracts. Yet, because of the way the constitution was written, the Kurds have veto power over any constitutional amendment. Hence the logjam.

This issue will undoubtedly be central to how the next government is formed after the March 7th elections. Again, because of the way the constitution was written, the Kurds more likely than not will be in a position to play kingmakers during the negotiations to form a government. There actually is a little bit of room for manouvering and compromising. There are plenty of tradeoffs that can be made regarding revenue-sharing and constitutional amendments. Yet, there is always the possibility that such an issue of colossal importance may precipitate violence since constitutional mechanisms seem to be useless. The Constitution is where many of the problems are to begin with.

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