The Constitution gives provincial governments the right to increase their revenues independently but in reality they still tend to rely on the federal government’s budget – this means that the Ministry of Finance in Baghdad still holds sway over Iraq’s states, and this power could be exploited under certain political conditions.
The focus should be on developing clarity in this area – ultimately this would lead to a reduction in the provinces’ dependence on the central government and would strengthen the basic principles of democracy.
But there is another important issue here: encouraging provincial financial independence will also require clarity on exactly how oil revenues are to be distributed. And this question is mired in suspicion, envy and mutual distrust.
Currently almost all of the revenue from Iraq’s oil ends up with the central government in Baghdad while the provinces that produce the oil get the left overs. As one classical Arab poem puts it, these provinces are like camels in the desert, who carry water on their backs but then die of thirst.
The way that oil revenues are currently distributed – concentrated in Baghdad – sets the financial foundation for a new dictatorship. In order to avoid this, we must agree upon a more fair distribution system that will also calm fears that the oil producing regions will take everything if they are given the chance.
Currently the wording of the Iraqi Constitution attempts to solve this problem by giving the national government the right to manage oil extraction and revenues. It’s not clear on what happens with new and undeveloped oil fields but at the same time it stresses equitable distribution of the revenues.
However the Constitution alone cannot solve this problem. New laws are needed. Unfortunately the inability of the Iraqi parliament to pass a new national oil and gas law has prolonged conflict in this area. That conflict has also resulted in unusual and uncertain practices – for example, some tribes in Iraq’s southern states have tried to impose extra fees on international companies before they start work on oil-field-development contracts they actually signed with the central government.
The decision made by the Iraqi parliament in 2010 to give the provinces US$1 for each barrel of produced oil, each barrel of refined oil and every 150 cubic meters of natural gas produced, is an important step toward reversing the financial injustices that the provinces suffered while Iraqi leader Saddam Hussein was in power.
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