Oil in Iraq and the Political Crisis.

In recent years, Iraqi oil policies have been dominated by internal disputes. The main problems revolve around the failure to pass, till now, a draft law that had been referred to parliament by Nuri al-Maliki's first government in February of 2007, for obvious political reasons. Indeed, this is the result of the dispute between the federal government, which insists on the centrality of oil policies but lacks the necessary flexibility to accommodate the new federal nature of Iraq after 2003, and the Kurdistan Regional Government (KRG) which implements its own oil policies, without regard to the ministry of oil, in violation of the constitution.

On the surface, the dispute involves the jurisdictions and responsibilities of each side in drafting oil policy. However, the real problem lies in the divergence of interests, agendas and visions over the new Iraq and the way of interpreting the articles of the constitution of 2005.

The oil dispute grew in scope, with regional and international repercussions leaving their mark on the sovereignty of the state and its future identity. For instance, a Turkish energy official stated last week that the first supplies of crude oil were directly exported from Iraqi Kurdistan to Turkey using a number of tankers estimated at seven.

Of course, this number is insufficient, even to meet local demand, but is the beginning of wider agreements. To be sure, it was previously agreed that a pipeline would be built to carry Iraqi oil directly to Turkey, without the approval of the oil ministry. In addition, it was agreed for gas to be exported similarly, "with or without the approval of the federal government", according to Dr. Ashti Hawrami, the KRG Minister for Natural Resources.

Exporting Iraqi oil from a region or province in the country without the approval of the Iraqi government is a flagrant violation of the Iraqi constitution, which restricts the right to export crude oil to the Iraqi government, through the State Oil Marketing Organization (SOMO).

Recently, several mega international oil companies challenged the government's oil policy, by signing investment agreements with the KRG. ExxonMobil ventured in first, and was soon followed by Chevron, Total (France) and Gazprom (Russia). Before them, around 40 relatively small companies sought investments in Iraqi Kurdistan, also challenging the government's policy of banning oil outfits operating in the Kurdistan region from working in the rest of Iraq, and penalizing them in the event of any violation of this policy.

Naturally, the mega oil companies do not risk taking such steps without getting a green light from their respective governments. More importantly, despite the threats made by the ministry of oil to these companies of cancelling their contracts in the rest of Iraq, this threat has yet to be implemented. While the ministry did suspend contracts for the development of oil fields in the rest of Iraq, it did not do the same with contracts for crude oil supplies through SOMO. If the ministry did that with the large corporations that purchase Iraqi oil in contracts that cover decades, this means that Iraq would lose greatly, especially as its productive capacity increases as is happening now, as this implies that Iraq will need larger number of steady customers to purchase growing volumes from its' exports.

Naturally, exporting oil without the approval of the federal government is the most serious challenge that faces Iraq's sovereignty and future. Yet, the challenges raised by international oil companies against the policies of the Iraqi government may grow further, creating bigger losses for Iraq.

As is known, Turkey is industrially advanced, but is lacking in raw materials such as hydrocarbons. Nevertheless, Turkey has access to large supplies of oil and gas from neighboring countries (Russia, Azerbaijan, Iran and Iraq). This means that Turkey does not urgently need Iraqi oil from the Kurdistan region, except perhaps to benefit from the discounts it will get. Why then is Turkey pursuing such a policy which will lead to serious problems with Iraq? Is it part of the efforts to improve relations with Kurdish factions, even if this will be at the expense of Turkish interests in Iraq? Or is it part of a policy to curtail Iranian hegemony in Iraq, and begin to compete with the Islamic Republic there gradually?

Furthermore, are the oil policies of the KRG part of the tug war with the government of Nuri al-Maliki? It is clear that disputes between the two sides are intensifying and exacerbating. Besides, they are no longer restricted to oil, but also include other secessionist and military affairs, and so forth.

There are internationally established norms that govern the responsibilities of federal governments, including defending the country against any foreign threat - and no doubt, the exportation of crude oil, which is the bona fide responsibility of the federal state. It should be noted here that the biggest beneficiary of these basic principles would be the Kurdistan region itself. For instance, the province of Basra produces 2.5 million barrels per day, while Kurdistan produces about 175,000 barrels per day, at a time when the KRG receives about 17 % of the total oil revenues of Iraq.

In addition, red lines must be drawn in the current dispute between Erbil and Baghdad. The two parties must not push things towards a point of no return, or engage in policies that invite regional powers to meddle in internal politics, no matter how deep the quarrels among Iraqi politicians may become. One bullet and it would be extremely difficult to rein in a bloody conflict.

Oil is a double-edged sword. If the Iraqi politicians come to the belief that they can threaten the other parties by using oil as a weapon in their dispute, they should be also aware that oil is highly flammable. This means that it would be very likely that such policies may backfire against their proponents, which is indeed what is happening today with the ban on companies operating in the Kurdistan region from working elsewhere in Iraq. For one thing, this will impact the Iraqi side itself.

This is in addition to the fact that exporting Iraqi oil directly from Kurdistan entails many risks. Here, the side that stands to lose is the KRG, which is party to many long-term oil agreements with a strong neighboring country that has regional ambitions of a historic nature. For this reason, it would be more prudent in this internal political dispute to reach compromise solutions that are consistent with the constitution, and resort to the ballot boxes over these issues. By extension, Iraq must also rush to establish the electoral commission on an independent, representative and highly professional basis, rather than on a sectarian and ethnic one- as is the case with the remainder of Iraqi institutions.

*. Mr. Khadduri is a consultant for MEES Oil & Gas (MeesEnergy)

2012 Media Communications Group

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