Oil development or Iraq's division?

The objections to the spate of oil contracts signed by the regional Kurdish government in Iraq are now loud and clear.

These contracts are signed without any recourse to the oil ministry in Baghdad and without reference to a general plan to develop the oil industry in the country as a whole in a way to generate the maximum benefit to the Iraqi people and the Iraqi economy at large.

These objections are a bit late especially on the official front where Shahrestani, the minister of oil, alone has voiced them without a word from the government to support him even though he insists that his objections are those of the government and not just his own. The doubt, however, persists as to where the council of ministers and the presidency stand.

In fact action was needed back in 2004 when the Norwegian company DNO signed the first contract with the Kurdish authority to explore for oil close to the Turkish borders. The government should have immediately declared the blacklisting of DNO. If the government had chosen to act then, Iraq would have avoided the deluge of new contracts in which 15 were signed within six weeks and Kurdish minister Hawrami threatened to "sign two contracts every time Shahrestani objects".

In fact, he is a man of his word when he said about the draft oil law that "it will be thrown in the dustbin" and he proved it by quickly enacting the regional oil law, which according to his interpretation of the constitution, takes precedence over any central law.

Objection

The objectors to these contracts including the oil minister have declared them illegal because, if the oil and gas resources belong to all the Iraqi people according to the constitution, then how can a group of people give itself the right to dispense of these resources without the knowledge and approval of other parties? Doesn't the owner of the whole have the right to see how the parts are developed and managed?

The Kurdish law avoids all these by declaring that "the oil and gas in Kurdistan region belongs to the Kurdish people" in a way compatible with the constitution. This duplicity can only lead to an actual division of Iraq if these contracts are allowed to proceed and become the model for other aspiring regions or governorates in Iraq where promoters of federalism are waiting to cash in on oil and other resources in a similar fashion. A feverish race among governorates will create a situation where upward concessions to the oil companies will be tendered in the unhealthy competitive atmosphere that will emerge.

There are no sufficient details published for the Kurdish contracts to be evaluated economically. Minister Hawrami of the north only says that the companies' profit is about 15 per cent but other people have calculated from the DNO contract a level of internal rate of return of between 70 per cent and 115 per cent on the basis of oil prices between $35 and $70 per barrel. In which oil region in the world is there such enormous profits and is this compatible with the constitution that called for maximum benefit to the Iraqis?

DNO claims that it is marketing its oil locally but nobody knows to which refinery and how it is paid for and how the Iraqi government and the Kurdish ministry or DNO are receiving their shares. There are recent rumours, however, that the produced oil is being smuggled to Iran with the help of the Revolutionary Guards.

The Kurdish oil law was enacted and approved so quickly and was immediately followed by the deluge of contracts to create conditions on the ground and force further amendments to the draft of the central oil law to render it meaningless and deprive the central government from any effective role in the future oil industry. But the most dangerous aspect of the Kurdish activity is its encroachment on lands in governorates that are not under its domain, especially in Kirkuk where it is preventing the development of the Khormala oil field. The field is part and parcel of the ministry of oil plan for the Kirkuk oil field and its equipment have arrived in Iraq months ago.

The same goes for the Kormor gas field destined to feed the major gas processing plant in Kirkuk while the Kurds have signed a different deal to develop the field independently.

These moves can only be taken as indicators of a secessionist attitude wherein the Kurds will implement their own schedule, weakening the central government and extracting further humiliating gains from it.

The world that needs the Iraqi oil reserves badly should be aware that it will be impossible to develop these reserves under such conditions and oil prices that are already high are likely to go even higher to the detriment of the whole world economy. The first step to correct this situation is to do away with the occupation and to admit that the whole thing was utterly wrong.

- The writer is former advisor, Ministry of Oil, Iraq.