Iraq: Oil & Gas Law

Why is the “full” implementation of this law so important for the reinstatement of the currency someday? I hope this study today will clarify most questions and things we are hearing in the recent news and from these so-called intel gurus.

There seem to be so much confusion in the guru intel community with holders of the Iraqi dinar, so I thought I would put together this simplified and short presentation as to why we need the Oil and Gas Law implemented prior to the RV.

First of all, when I (and Iraq) talk about the Oil and Gas Law being implemented, we are talking about the provision within the legal framework of the new Iraqi constitution of October 2005 and enforceable beginning in 2006 that still has to be put into a more detailed set of provisions called a “referendum”. The referendum will be the “enactment” of the constitution in more detailed practical terms. Once this is done and passed in parliament the Oil and Gas law will be completed. Finally….

It is now the year 2023. Yes, 17 years (almost 2 decades) since Iraq implemented their new constitution yet they still do not have a formal Oil and Gas law. Why is this?

A draft oil and gas law has drawn criticism from Iraq’s Sunnis, who prefer a stronger role for the central government, and from Kurds, who prefer a stronger management role for the regional authorities. The majority Shiites have sought to mollify the Sunnis by keeping control of Iraq’s oil sector primarily in Baghdad, not the regional governorates.

On 15 February 2022, the Federal Supreme Court of Iraq (the “Iraqi Supreme Court”) issued a long-awaited and potentially fundamental decision relating to the ownership and control of oil and gas situated in Kurdistan, as well as the legality of the entire independent Kurdish oil and gas sector.

The Iraqi Supreme Court’s decision purports to resolve a long-standing legal and political dispute between the Federal Government of Iraq (“FGI”) on one hand and the Kurdistan Regional Government (“KRG”) on the other. While the decision focuses on the relationship between Federal Iraq and Kurdistan, a semi-autonomous region within Iraq, and the interpretation of the Constitution of the Republic of Iraq (the “Constitution”), it is likely to be very significant for all international oil and gas companies (“IOCs”) who have invested or are considering making investments in Kurdistan.

Could this recent court decision finally be the spark that will get the Oil and Gas law written successfully and passed in parliament?

Let’s continue….

Before the Constitution was enacted by a referendum on 15 October 2005, control of Iraq’s hydrocarbon industry was a settled question. The FGI was solely responsible for the development, management and sale of oil and gas throughout Iraq. However, after the Constitution, the FGI and the KRG began to adopt different interpretations of Articles 111 and 112.

The FGI’s position is that, read together, Articles 111 and 112 provide that the FGI is exclusively responsible for “managing” oil and gas “extracted” from “present fields” in Iraq on behalf of the people of Iraq, albeit it must do so “with the producing governorates and regional governments”, which includes the KRG (recognised explicitly in Article 117(1)). It is therefore the FGI, and only the FGI, which is empowered to determine Iraq’s strategic oil policy and to explore, develop, exploit and market oil and gas within Iraq and internationally, including managing any engagement with IOCs.

The KRG’s position ultimately rests on the meaning of “present fields” in Article 112(1). The KRG contends that “present fields” encompass only those which were producing oil and gas in October 2005 (the time of the enactment of the Constitution), and that the FGI is not therefore empowered to manage oil and gas in respect of any fields which were not producing at that time. The FGI’s response is that the term “present fields” in the context of Article 112(1) includes fields which were proven but not necessarily actively producing in October 2005.

The KRG also argues that the word “extracted” in Article 112(1) limits the FGI’s authority to management of oil and gas after extraction, and the FGI does not therefore enjoy the same powers prior to extraction, that is to say, during development and exploration. The FGI’s response is that Article 112(2) provides it with authority to dictate how all oil and gas development activities in Iraq should be undertaken, including exploration and development. The KRG’s counterargument is that the FGI only has authority to decide broad brush policies regarding oil and gas, with the KRG empowered to manage the detail in respect of fields within Kurdistan under Article 115, which gives the KRG residual authority to decide matters not exclusively allocated to the FGI under Article 110.

Adding to the constitutional ambiguity, there is no federal oil and gas legislation in Iraq, despite the Constitution requiring one. Although various draft laws have been proposed, including in 2007 and 2011, no federal law has ever been enacted. Instead, it was the KRG which passed Law No. 22 of 2007 (the “KRG Oil and Gas Law”), under which the KRG granted itself powers to enter into production sharing contracts (“PSCs”) with IOCs.

Notwithstanding the absence of a federal law, the FGI has consistently maintained that the KRG Oil and Gas Law, and all PSCs entered into by the KRG under it, are unconstitutional and invalid, and that the FGI’s State Oil Marketing Organization (“SOMO”) is the only entity entitled to market and authorize the export of petroleum produced anywhere in Iraq.

What led to the Iraqi Supreme Court’s decision?

Until 2013, the KRG exported most of its oil and gas by trucking crude oil across the border into Turkey or Iran to be sold locally or transported to various ports for sea shipment. In response, the FGI threatened to ‘blacklist’ any buyers of independent Kurdish crude by forbidding them from purchasing the FGI’s crude from SOMO or participating in upstream bid rounds conducted by the FGI. In addition, in August 2012, the FGI commenced proceedings against the KRG requesting a decision on the interpretation of the Constitution and the legality of the KRG Oil and Gas Law, a request which the Iraqi Supreme Court has finally addressed in its recent decision, nearly ten years later.

To add even more controversy over the Iraq oil….

Then, in November 2013, despite stern opposition from the FGI, the KRG built a pipeline spur linking three of its major producing petroleum fields to the Iraq-Turkey Pipeline (“ITP”). The KRG thereby expanded its ability to export crude directly to Turkey and onwards into international markets (typically bound for Europe, Asia or Israel after loading at the Turkish port of Ceyhan).

The oil saga continues…..

In response to the ITP pipeline spur, in May 2014, the FGI commenced an ICC arbitration against Turkey and the Turkish state pipeline operator, BOTAŞ, seeking orders to compel them to stop transporting, storing and loading Kurdish crude without the FGI’s consent, and to pay damages on the basis that Turkey’s actions violated the agreement governing use of the ITP. That arbitration is still pending resolution. Around the same time, the FGI sought an injunction from the Iraqi Supreme Court, which the Iraqi Supreme Court declined to give until it had ruled substantively on the legality of Kurdish exports, a ruling it had (until its decision in February 2022) been prevented from giving because the KRG has refused to attend any hearings. At the same time, SOMO wrote to several IOCs, trading houses, refining companies and other third parties advising them not to facilitate the export and sale of Kurdish crude without SOMO’s authorization against a veiled threat of blacklist.

Can you also now see why the Turkish army attacks into the oil fields of Kurdistan? We have read many articles on this topic. Yes, it is all connected with the lack of a proper Oil and Gas law, as specified by the constitution. The new media talks about the attacks and hypes up the infringement of Iraqi sovereignty but never really givens any details or explanation as to why Turkey would suddenly attack Kurdistan region of Iraq. You can also now see why the supreme court of Iraq had to make its ruling in order to finally get the Oil and Gas law passed to satisfy the constitutional requirement.

The question is this – Is Iraq truly now ready for this Oil and Gas referendum?

Just in February 14, 2023….

Parliamentary wealth: All roads are open to passing the oil law in parliament

A member of the Oil, Gas and Natural Resources Committee, Kazem Al-Tooki, revealed that there are parliamentary efforts to pass the oil and gas law soon, indicating that all roads are clear towards passing the law.

Al-Touki said in a statement to Al-Maalouma, that “the political situation that the country is going through is ready to accelerate the oil and gas law and all controversial laws.” 

He added that the legislation of the law will serve the oil-producing provinces,” noting that the legislation of the law is among the priorities of the government program and the political agreement within the State Administration Coalition.” 

Stressing that the legislation of the law during the current session will be a radical solution to the dispute over oil wealth, and added that there are efforts to pass the law in the dome of Parliament. 

The Al-Fatah Parliamentary bloc had suggested, earlier, that the oil and gas law be approved during the current session due to the presence of the political will of all forces, including the Kurdish forces, stressing that the recent meeting of the state administration forces seriously discussed the issue in order to approve it in the current session.

So, we can obviously see we are not just talking about just some “HCL” law and giving handouts to the citizens on debit cards as a means to trigger the RV, as many of the intel gurus allude to. As we can read today, there is much, much more to the oil and gas law. The oil and gas law also goes hand in hand with Article 140 also of the new Iraqi constitution which governs the disputed lands between the border of Iraq and Kuwait. These lands are also rich in oil. So, whenever we read about any progress towards the oil and gas law from Iraq they are referring mostly to Article 112 but it is usual also to consider the Article 140 ramifications.

Legal and regulatory framework Constitutional framework

The basic legal framework for the oil and gas sector in the Republic of Iraq is set forth in the Constitution of Iraq, which was approved by the Iraqi people by referendum on 15 October 2005 and entered into force in 2006. The relevant provisions of the Constitution provide as follows.

Article 111

Oil and gas are owned by all the people of Iraq in all the regions and governorates.

Article 112

First: the federal government, with the producing governorates and regional governments, shall undertake the management of oil and gas extracted from present fields, provided that it distributes its revenues in a fair manner in proportion to the population distribution in all parts of the country, specifying an allotment for a specified period for the damaged regions that were unjustly deprived of them by the former regime, and the regions that were damaged afterwards in a way that ensures balanced development in different areas of the country, and this shall be regulated by a law.

Second: the federal government, with the producing regional and governorate governments, shall together formulate the necessary strategic policies to develop the oil and gas wealth in a way that achieves the highest benefit to the Iraqi people using the most advanced techniques of the market principles and encouraging investment.ii Draft oil and gas law

As referenced above, Article 112 of the Constitution of Iraq requires the enactment of a law to regulate the oil and gas sector. To date, however, no such law has been enacted.

In February 2007, an initial draft oil and gas law was approved by the Council of Ministers and later revised in April of 2007. Because of differences over the terms of the draft law, the 2007 draft law was never enacted.

A revised draft of the oil and gas law was presented to the Council of Ministers in 2011. Among its salient points are the following:

1.the establishment of a Federal Oil and Gas Council (FOGC), which would act as the main body for overseeing the Iraqi petroleum sector.

2.the delegation with a specific set of responsibilities to the FOGC (see Iraqi constitution for further info on these responsibilities)

3.the establishment of the Iraq National Oil Company. (The Iraq National Oil Company (INOC) was founded in 1966 by the Iraqi government. It was empowered to operate all aspects of the oil industry in Iraq except for refining which was already being run by the Oil Refineries Administration (1952) and local distribution which was also already under government control.)

4.provision for the relevant authority in the Kurdistan region (or any other region that may be established pursuant to the Iraqi Constitution subsequent to the enactment of the oil and gas law) to participate in petroleum-related matters. (Please reference the Iraqi Constitution for more details on how they should participate). (So, who actually owns all the oil? Is it Kurdistan or the GOI? The answer is simple as it is the people of the nation of Iraq and that consists of Kurdistan and the other half of Iraq – yes, one united country.)

5.provision for the entry of exploration, development and production contracts with private companies (both Iraqi and foreign), including principles for the granting of such contracts, and topics to be included in all such contracts. (Please reference the Iraqi Constitution for more details on how they should participate). (We have seen many articles of granting companies licenses to come into Iraq for this purpose.)

6.a clear right for license holders to transfer profits outside of Iraq (after payment of relevant taxes).

7.a requirement that petroleum revenues be ‘distributed fairly among the people’, as regulated by a separate law. (This is the provision that most of these intel gurus talk about when they talk about HCL. So we can see that the oil and gas law is much, much more than the distibution of petroleum revenues to the people. But have we seen this yet?)

8.establishment of a future fund in which a percentage of petroleum revenues will be deposited to ensure the rights of future generations. (This is the special fund we are hearing about in the Iraqi news that they are pushing to establish. It is being called the “sovereign fund”)

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