KRG Contracts Conundrum

Iraqi Prime Minister Nouri al-Maliki announced earlier this month that the oil ministry approved the two production sharing contracts for the Tawke and Taqtaq fields, signed before the constitution was drafted, for a variety of reasons which to his mind justify the legalization by Baghdad. A day after Mr Maliki was interviewed, the Kurdish Prime Minister Barham Saleh was quoted as saying that “all contracts” signed by the KRG received the approval stamp of Baghdad. However, deputy PM for energy Hussein al-Shahristani cried foul. He said the PM was misquoted and Kurdish contracts need to be converted into service contracts similar to those awarded by Baghdad in three successive bid rounds.

There is no evidence that Mr Maliki was misquoted. He was clear when he said the oil ministry in Baghdad gave its seal of approval to Erbil and he went as far as explaining why to his mind this was justified. “The nature of the extraction in Kurdistan is different from Basrah. It’s difficult to have service contracts in Kurdistan but it’s normal to have them in southern Iraq”, Mr Maliki said. Whether the justification itself holds ground or not, is another issue. But the prime minister has obviously thought his answers well before uttering them. And it is obvious too that the prime minister did not consult his deputy PM on the deal he agreed with his Kurdish counterpart. Mr Shahristani was travelling abroad on the day Mr Maliki met with Mr Saleh.

The question that begs to be asked is: will this deal stand and for how long? The fact that it was a political deal that was part of another even bigger political deal that was needed to guarantee the prime minister a second term in office, means that it lacks the consensus to make it sustainable on the long term.

Regardless of how one views that deal, it is obvious that the situation was not tenable any longer and both Baghdad and the KRG had to get their act together and stop wasting Iraqi money by integrating Kurdistan oil production into the national output. There are several requirements that would make a deal of that sort sustainable. First, it has to be in line with a national oil policy – though this policy is yet to be defined. Second, such an important oil policy decision should be made by consensus of the Iraqi council of ministers or at least after a discussion in the cabinet. Third, the justifications for the solution-deal should be founded on better grounds than the simplistic explanation given by Mr Maliki, specially that we’re talking about contracts that would outlive the prime minister and his cabinet and will be of concern for the next generations.

The recent unilateral recognition by Mr Maliki of the KRG deals – though my understanding is that it’s limited to the two fields of Tawke and Taqtaq – underpins the years wasted on politicking between Baghdad and Erbil while the two sides were entrenched into their non-compromising stands. To save the country more of the same for the next few years, it might be time for Iraqi politicians to push for the long-delayed oil and gas law and make the legislation on hydrocarbons the legal reference for all decisions related to Iraqi oil whether in the north or the south. It is almost certain that failing that, Iraq will tilt more towards the one-man rule and less towards a state of law.

3 comments

  1. One of the most complex issues has been oil production in the KRG region, where the Region signed unilaterally PSA with foreign companies. The Federal MoO refused to recognize these contracts, on the ground that they violate the constitution, and there were many concerns regarding these contracts,and they need to be reviewed by the MoO.
    On Jan. 2011 The Iraqi government and the Kurdistan authorities reached undeclared agreement led to the resumption of oil exports on early February,2011. Very little was known on this agreement and a lot of speculations were reported by the media. The central government pledged to make payments to foreign producers in the Kurdish area, and they agreed that the central government’s State Oil Marketing Organization would handle the oil and gas produced there. They also agreed that all revenue should go to the central Treasury. Deputy PM for energy Hussein Al-Shahristani said the PM was misquoted and Kurdish contracts need to be converted into service contracts, so where we draw the line?
    Your understanding that the unilateral recognition by the prime minister of the KRG deals is that it’s limited to the two fields of Tawke and Taqtaq could be very well put, to avoid any further delay and politicking and paving the way to pass the outstanding related issues:
    1-The hydrocarbon law, which would provide a framework for managing the oil sector in Iraq.
    2- The revenue sharing law, which determines a mechanism for redistribution of funds.
    3- Law reorganizing the Oil Ministry into a purely regulatory body.
    4- Law re-establishing the Iraqi National Oil Company.
    However the people in Iraq should know all the facts, and they expect the Government to clarify the agreement reached by both sides; otherwise your statement:Iraq will tilt more towards the one-man rule and less towards a state of law is correct.

  2. The problem is that the PM doesn’t stop shooting himself in the foot. Asked today (Feb.17) in a press conference about Al-Shahristani’s statements and his denial of an agreement, he answered: “A document was signed between the ministry of oil and the ministry of national resources in the KRG. The fundamental content of the document is that any oil produced in Kurdistan will be handed over to Somo to be exported and the government will bear the PRODUCTION COSTS. If there are any legal questions, that’s another issue”. These are Maliki’s exact words!

  3. Although resolving disputes with KRG is always welcomed,few have expected that the oil dispute would end with such a pathetic anticlimax.
    Dr. Shahristani tried to minimise damage when he said the Prime Minister was misquoted. But alas it seems that plitical expediency is what matters these days.
    It is also intersting to note the complete absence of any reaction from other political parties and coalitions, indicating that they all were prepared to do likewise.

Leave a Reply