IRAQ: False Alarm on Oil Exports or Not? by Reidar Visser

Posted by Reidar Visser on Wednesday, 2 February 2011 13:57

The surprising aspect of the failure to start oil export from Kurdistan yesterday was not the fact that the target date of 1 February was missed. This happens in Iraqi politics all the time: Each day, for almost every issue of significance, one can find someone saying it will be solved “in two days”, others claiming it will take “two weeks” and some maintaining “the rest of the month” is needed. Rather, the remarkable thing was that the messenger in this case was someone who has a businesslike reputation and is seen as reasonably realistic by friends and opponents alike – the prime minister of the Kurdish Regional Government (KRG), Barham Salih.

It is still unclear whether the delay means the oil-export issue will simply become one among several items in the growing quagmire of pending questions in Iraqi politics or whether a solution is actually around the corner. The new government that was announced in late December 2010 remains incomplete without security ministers. The controversial, US-supported strategic policy council remains bogged down in detailed disputes about the status of its chairman/president (that technical distinction is part of the dispute!) and the country has no legally elected vice presidents (not that they are needed, but this issue keeps deflecting energy from potentially useful discussions). Before parliament can give the budget the full attention it requires, it needs to elect more committee heads and update its own bylaws, and with the recent outrage over Maliki’s moves to bring the “independent” commissions under closer control by the executive, there is more talk than ever about actually trying to craft the special legislation for the federal supreme court called for under the constitution (which requires a two-thirds majority in parliament).

The oil-export issue itself has some additional problematic aspects that have received a certain degree of attention already and are likely to cause more widespread discussion once the issue reaches the full parliament through the budget, regardless of whether oil is actually about to start flowing (and some media reports suggest this is indeed the case). Ever since the first oil-export attempt was aborted in 2009 and local sales of oil were initiated in Kurdistan by the local authorities in order to compensate the foreign companies working there, voices critical of these local sales have been heard in Baghdad. When Ashti Hawrami, the KRG natural resources minister, told The New York Times on 8 July 2010, at a time when the local sales of oil were peaking, that proceeds from oil smuggled to Iran were being used to compensate foreign companies operating in the region, it certainly added to the controversy (even through Hawrami later claimed journalists had failed to understand his distinction between oil and oil by-products). At any rate, going forward, it seems clear that a part of the proposed new deal on oil “exports” from Kurdistan actually involves not exports as such but rather boosting production for local markets, and if this relates to some kind of special quota for Kurdistan that will be exempted from the general, population-based national revenue-distribution formula and hence less transparent – and if local sales are done according to a different formula than export oil (i.e. if more money gets pocketed by the foreign companies) – then it could certainly prompt criticism from Iraqi parliamentarians who are likely to ask tough questions about any deviance from the constitutionally mandated, universal pattern of distribution across Iraq. Again, it is critical to note that as far as oil is concerned, there is not one iota of difference between a federal region and a governorate when it comes to the relevant constitutional provisions.

Meanwhile, the Kurds have made one important gain in that Khalid Shwani has reportedly been made head of the important legal committee in parliament, a job which the secular Iraqiyya had been seeking. The position is potentially useful, though particularly as a tool of obstruction. The challenge for the Kurds is that their long list of demands to Maliki (the 19 points) involve complicated pieces of legislation on issues like the presidency council and energy that are likely to stay in parliament for a very long time before they ever reach the legal committee, no matter what Shwani does (or what Maliki has promised). Ultimately, though, it is likely that these elected forums, rather than backroom deals, will decide the overall structure of Iraq’s oil-export regime in the long run, regardless of whether some kind of short-term fudge will enable oil to flow from Kurdistan in the near future.

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