Government says deal has been reached with Kurds over Iraqi oil law (page 1 of 3)

Significance

The central Iraqi government and the Kurdistan Regional Government (KRG) have reportedly agreed on a draft oil law, based more or less on the original February 2007 draft, which covers how—and under whose auspices—hydrocarbon revenues will be shared, as well as a mechanism to validate nationally the KRG-awarded oil contracts.

Implications

The importance of an agreement—which has still neither been confirmed nor denied by the KRG—cannot be overstated, although the draft will now have to be carried all the way through the parliament to become law. Iraq's government says it has secured the sufficient parliamentary support, but several institutions will find it hard to resist putting their mark on the draft, risking a repetition of last year's conflict.

Outlook

It enacted as law, the draft could usher in a new era for Iraq: allowing IOCs to invest in the country, leading to a rapid inflow of badly needed technology and expertise, more effective and modern management, and—in the medium-to-long term—large oil and gas output increases.

Finally an Agreement?

In comments to U.S. news agency UPI's Ben Lando yesterday, Iraq's top government spokesman, Ali al-Dabbagh, said that a deal between Iraq's central government and the Kurdistan Regional Government (KRG) has been reached, based on the draft oil law version agreed among Iraq's main political factions in February 2007. Al-Dabbagh also said that political parties in parliament had recently pledged their support and that the talks held with representatives of the Kurdish factions had led to a "new atmosphere".

The draft oil law is centred on the establishment of a federal oil and gas council, not unlike the supreme oil and gas councils steering hydrocarbons policies in—among others—Kuwait and the United Arab Emirates, guaranteeing a continuity and stability in policies.

The council would, in Iraq's case, delineate national versus regional government control over producing fields and exploration blocks, as well as having a last say on the legality of the terms offered in all contracts. Al-Dabbagh seemed to imply that an understanding has been reached with the KRG about respecting their right to award contracts, especially the contracts it already has awarded, saying that "this is going to be reviewed and is going to be checked whether they are workable with the new law or not. If not they should be amended in order to have them matching with the new regulation of the oil law."

The review process is therefore likely to just bring the terms offered by the KRG in line with the terms agreed upon at the national level. This should not immediately result in any major changes in the contracts signed between IOCs and the KRG, as the oil law the KRG autonomously enacted last year bases the terms it offers more or less on what was agreed on in the February 2007 draft.

The agreement is also said to comprise measures for revenue sharing between the regions, the re-establishment of the Iraqi national oil company, and measures to reorganise the Oil Ministry into more of a supervisory and policy-developing structure.

Close, but no cigar

While the reported agreement between the shaky government coalition and the KRG is a major step forward in the Iraqi political process to get development and rebuilding under way, and al-Dabbagh's comments indicate that a critical mass of parliamentarians could be ready to support the draft, the document's journey to the parliamentary floor will be perilous.