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The black gold rush

Klaas Glenewinkel
It is an old cliché that politics is too important to be left to the politicians. But are new moves to decide the future shape of Iraq’s oil industry happening too fast to achieve public consensus – on issues that…
15.06.2006

The new Oil Minister, Husayn al-Sharistani, announced on Saturday that within two months he will draft legislation to govern Iraq’s oil sector, and aims to have his oil law passed by Parliament by the end of the year. The law will define the relative roles of the federal government, of the regions and governorates, and of private companies.

The issues could hardly be more important.

The degree of centralisation in the control of oil, and the revenues from it, are important aspects of the question of federalism. If misjudged – either by denying a fair share to the regions in which oil is located, or by giving regions too much autonomy at the expense of national cohesion – these oil decisions could fracture, and ultimately break apart, the country. However, given that the federalism issue is one of the most contentious aspects of the constitution, it is surprising that the oil law will be drafted – and possibly even passed – before the constitutional review process is complete.

Meanwhile, while there has been discussion on the question of the split of revenues between the centre and the regions, there has been almost no debate on the split between state entities and private companies.

Just three days after his appointment, Mr Al-Shahristani told a press conference that he planned to sign contracts with “the largest oil companies”. This would be the first time for more than thirty years that foreign companies have a major stake in Iraq’s oil. Oil was brought into public ownership and control in a process that began with Law 80 of 1961, to be completed in 1975. Public ownership of natural resources and industry is an issue about which many Iraqis feel very strongly. Yet decisions made in the coming months will not be reversible, as once contracts are signed, they will have a major bearing on Iraq’s economy and politics for decades to come, especially as oil accounts for more than 90% of government revenue.

“Federalism” and “privatisation” are not the only potentially divisive issues. The oil industry – like the rest of the country – has been plagued by corruption, and by the worsening security situation. The oil law will have an impact on both problems. A transparent and coordinated approach will be necessary in the fight against corruption. On the other hand, if deals with foreign companies are seen as secretive or unfair, they will only feed resentment, and in consequence the violence that has gripped the country.

Mr Al-Shahristani’s desire to move forward decisively and assertively may be his antidote to the ministry’s stagnation over recent months, hampered by political infighting. However, to do so before political and public consensus is achieved would create more problems than it would solve. Throughout Iraq’s history, the management of oil has been carried out in favour of narrow interests, whether foreign companies, the dictatorship or more recently, criminal elements and certain political interests.

That is not to say the government should do nothing. There is certainly an urgent need to address corruption, to improve security, and to carry out the technical rehabilitation of Iraq’s existing fields. On these issues, there is no major dispute. But before making the bigger decisions, proper public consultation and participation is vital.

Some interest groups have already insisted on having a say in the oil law. Most major international oil companies have been in contact with the Oil Ministry. And the International Monetary Fund required that it be involved in the drafting of the oil law, as part of the economic conditions it imposed on Iraq in December 2005. The fulfilment of these conditions is a requirement of the Paris Club of wealthy creditor nations, in exchange for relief of another portion of the international debts accumulated by the former regime.

The US government is also ensuring that its views are represented. It has appointed an adviser to work with the Oil Ministry on the law, from BearingPoint, the company that was hired by the Coalition Provisional Authority in 2003 to design the blueprint for the privatisation of the Iraqi economy.

But the oil in Iraq belongs to the Iraqi people – as is stated in the constitution. If that clause of the constitution is not to be considered meaningless, it should be the Iraqi people who decide how oil is managed, and the Oil Ministry should make provision for genuine public consultation.

The Oil Ministry should request and consider the views not just of political parties, but of civil society groups, experts, trade unions and others. It should open a process of informing and seeking the opinions of the general public, through workshops and meetings around the country, through publicising proposals in newspapers and on TV.

This is not a process that can be completed in two months. While the impatience is understandable, it is dangerous. Will oil be a blessing or a curse for Iraq? Public debate could make a difference.

By Greg Muttitt

15 June 2006

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Further Niqash articles on this topic:

Niqash " Kurdistan's Oil under the control of foreign companies?"

A British and an Australian Official Help a Private Company to enter Iraq

Bahr al-'Ulum: We are not going to sign any oil investment contracts that will contradict our national interest

Shamkhi Faraj: Iraq must make use of its opportunities quickly

Oil ministry's inspector-general: Iraq loses 2 billion dollars every year because of smuggling and corruption in the oil sector

Ali al-'Allaq "Second Transparency Report on Smuggling of Crude Petroleum and Products"

Greg Muttit "Oil privatisation through the back door"

Greg Muttit "For whom, the wells drilled?"

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