Iraqi Oil: Resource Curse or Glorious Blessing?

As part of the learning process the Ministry has introduced, in the model contract for bid round four, a modality to counter gold-plating and cost inflating. This modality applies to the four concluding contracts of the exploration blocks, and for any future contracts. However, if previous contracts are renegotiated then this modality should be on the table.

In conclusion, considering other fiscal conditions of the service contracts I believe Iraq has managed to get good deals. As mentioned above, re-negotiating these contracts might eradicate and compromise Iraqi interests. That would be a high political price for the ministry and the government to accept.

RT: Sudan and South Sudan are two parts of the world who fought each other for so long that by the time the UN peace process took effect, Sudan was one of the poorest nations in the world. Despite a long ceasefire, oil revenues remain a source of tension, but some political progress was made recently. Do you think that Iraqi politicians will ever finalise a proper oil law for Iraq accepted by all Iraqis (unlike Article 111 of the Iraqi constitution) and do you think the absence of such a law creates the risk of more conflict in Iraq?

AMJ- Let us leave the Sudan analogy, though I was working in Sudan when the peace agreement was signed, and focus our attention to the Iraqi Federal Oil and Gas Law-FOGL, which is a very complex and tenacious issue for many reasons.First, there are many versions of FOGL: four pre July 2011 and two post that date. The differences between these versions are very substantive in terms of content, coherence, functionality and implication. But when people refer to FOGL they do not state which version, what issues and why.

Secondly, all these versions were formulated in February 2007 in draft form. But between that date and today, many serious developments took place rendering that formulation obsolete, overtaken by the crisis and dysfunction within Iraq.  As it is known, the ministry of oil signed 19 service contracts, while the KRG signed 48 production sharing contracts, covering most of Iraq’s highly prized fields and many of the exploration blocks (in RKG). Provisions of these concluded contracts deviate seriously from those envisaged in 2007. Therefore, would these contracts be revised to be streamlined with the 2007 FOGL, or would that version have to be radically redrafted to accommodate the concluded contracts, assuming mutual recognition of these contracts by both governments- the federal and KR? In this regard there are formidable legal, constitutional and political hurdles making it almost impossible to adopt, let alone implement the FOGL of 2007 (in any version.)

Third, the text of FOGL implies the enactment of many other laws, and thus creating some sort of “organic linkage” between these laws: Revenue sharing law, INOC law, MoO Law, Revenue Commission Law, Oil Fund/Future Fund law. Such linkage implies “all-or-nothing,” and thus makes it unfeasible to promulgate any of them. Therefore, such formulation was absolutely unnecessary, legally and constitutionally impermissible, and structurally incorrect and inconsistent.

Fourth, the text of FOGL is full of ambiguities pertaining to authorities, functions, procedures the and modus operandi of many entities mentioned in the law, particularly those related to the federal oil and gas council and jurisdictions. Adding more serious ambiguities to those of the Constitution (as already admitted by many within the executive, legislative and judicial branches of government and professional community) would render FOGL dysfunctional. The law is supposed to address the ambiguities of the constitution, not to create even more. But the leading politicians interpret the constitution differently and they seem to perceive FOGL as a component of the “political horse-trading” instead of a“legal” instrument. Therefore, unless the ambiguities of the constitution are resolved the chances of passing a functional FOGL are highly unlikely.

RT: You were a senior economist in Iraq with the MoO and INOC and chief expert with Ministry of Trade and the Council of Ministers until July 1988 when you left to the US as Visiting Fellow at Fletcher School of Law (of Tufts and Harvard universities). At the time, the Iran-Iraq war had already cost Iraq dearly in terms of life lost and economic damage. Two years later, when you left Iraq, Saddam’s invasion of Kuwait led to the worst sanctions imposed on any nation in history. All of these developments seriously damaged Iraq’s energy sector- as well as almost everything else in Iraq. However, some have suggested that after 2003, the Iraqi government should have kept control of the oil sector and that foreign involvement was too large. These people argue that Iraq could have rebuilt its energy sector without so much foreign help. Is this idea a fantasy, or do you think Iraq had a chance to rebuild the energy sector by itself?

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