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By Adam Montana
Oil and gas laws: a crux of Erbil-Baghdad tension
By Omar Moradi yesterday at 11:14 Iraqi forces drive past an oil production plant as they head towards the city of Kirkuk on October 16, 2017. Photo: Ahmad al-Rubaye | AFP The lack of oil and gas federal legislation has been the root cause of problems between Erbil and Baghdad since the Iraqi constitution was approved in 2005. Now there is a government in Baghdad that has shown its desire to resolve these problems through dialogue, and the success of the new Kurdistan Regional Government (KRG) cabinet depends on whether the oil and gas issue is resolved with Baghdad.
According to the constitution, it is the joint responsibility of both the federal and regional government to develop oil and gas resources through a particular oil and gas legislation. But as of yet, no such legislation has been passed, causing disagreements between the two governments.
Iraq's parliament unsuccessfully tried to pass a law on oil and gas in 2007. Following that, Kurdish parliament passed its own oil and gas law that same year, allowing the KRG to handle and develop the region’s natural resources.
The Kurdistan Region parliament’s oil and gas law gave it complete power over the region’s natural resources, much like an independent and sovereign country. The conditions of the oil market along with the law helped foreign companies invest substantially in the oil and gas sectors in the Kurdistan Region.
Investments in Kurdistan Region’s oil and gas sectors reached its peak when oil prices were high pre-2014, surpassing $20 billion. But after oil prices fell in mid-2014, the Kurdistan Region and the rest of the world's oil investors faced a deficit.
This shock was especially big in the Kurdistan Region. The federal government in Baghdad cut Kurdistan Region’s share of the federal budget in 2014, after which a big financial crisis rocked the Kurdistan Region. The impact of the crisis is still seen in the Region's economy. The Kurdistan Regional Government (KRG) still owes money it borrowed during this time.
The KRG and federal government should resolve oil and budget problems in order for stability and certainty to return to the economy of the Kurdistan Region - otherwise a big opportunity will be missed.
The Iraqi constitution can help in this matter. According to Article 112 of the Iraqi constitution, the running of oilfields in Iraq is the responsibility of both federal and regional governments, or the provinces the oil lies in.
According to the oil and gas law of the Kurdistan Region, the KRG and its Ministry of Natural Resources are free to sign contracts with foreign companies that serve the interests of the Kurdistan Region. That is why the KRG signed nearly 50 contracts with oil companies after 2007 which are producing substantial amounts of oil and natural gas.
The KRG planned to produce a million barrels of oil per day, but couldn’t do so because of the Islamic State (ISIS) onslaught and falling oil prices after 2014. But because of its robust oil and gas legislation, it still has the ability to produce vast quantities of oil and gas in the coming years.
The Kurdistan Region’s oil and gas law shouldn’t be abandoned in negotiations between the KRG and federal government on the issue of oil sales and production. The oil and gas law of the Kurdistan Region allows for the setting up of a box for oil revenues. The law also considers the formation of some national companies for the exploration, production, and marketing of oil in the Kurdistan Region. The establishment of these national companies can reinvigorate the oil sector in the Kurdistan Region.
With regards to the sale of oil, the Kurdistan Region can give all or some of the oil it produces to the federal government via national companies and ask for its fair share in return. This will not reduce the Kurdistan Region’s control over its oil sector, as the KRG has its own oil and gas law, is running these sectors in its own way, and has established its own mechanism and infrastructure for the last 10 years.
By Adam Montana
OPEC deal important for oil market stability: Iraqi PM
By Mohammed Rwanduzy 2 hours ago Iraqi Prime Minister Adil Abdul-Mahdi addresses reporters during his weekly press conference in Baghdad on July 2, 2019. Photo: Iraqi PMO video ERBIL, Kurdistan Region — Iraq’s premier praised the OPEC deal to on Tuesday staying oil production cuts for nine more months because it is important for market stability as Baghdad is so heavily dependent on oil revenue.
“This is important for market stability. This topic, for us, the Kingdom and all the producers and exporters of oil is important because budgets depend on oil market stability,” Iraqi PM Adil Abdul-Mahdi told reporters in his weekly press conference on Tuesday. Members some non-members of the Organization of Oil Producing Countries (OPEC) met in Vienna this week. Following a prior agreement on Monday between Saudi Arabia and Russia, the cartel agreed to extend production cuts of 1.2 million barrels per day (bpd) for nine more months until March 2020 in a bid to push global prices higher.
The agreement was based on the Saudi desires to “face market developments and preserve the measures undertaken”, the PM Abdul-Mahdi revealed, adding that he had a phone call with Saudi King Salman prior to the deal.
According to Iraqi Ministry of Oil statistics for the month of June, Iraq’s oil revenue fell from $7.38 billion in May to $6.4 billion in June as its exports fell by 6 percent, from 111 million barrels in May to 105 million barrels in June.
Iraq exports around 3.5 million barrels per month — the second highest crude oil producer in OPEC.
Iraq has agreements, especially a mega deal with the US giant ExxonMobil, to develop its southern oilfields to increase its production capacity. However, due to a missile that hit the main headquarters of the company in Basra, some foreign staff were evacuated in June.
The attack against ExxonMobil came amid soaring US-Iran tensions; Iraq could be negatively impacted if the hostilities breakout between Iran and the US.
However, it also raised questions about Iraq’s ability to provide a secure atmosphere in which foreign companies could invest in the decades-deprived oil sector. It has been reported that Iraq could act as Iran’s “ATM” to provide a loophole for US sanctions.
Abdul-Mahdi, in his typical understated manner downplayed the incidents against energy and other companies working in Iraq, claiming they do not exceed those in “other countries.”
“The security measures are crystal clear. Yes there have been threats, but no real security violation has taken place to any of our oil and non-oil installations. We undertake all measures,” he said.
Some ExxonMobil employees have returned, the PM claimed, without elaborating.
Separately, the PM also touched on connecting Iraq’s electricity grid to Arab and regional electricity grids — namely Jordan, Syria, Saudi Arabia, Turkey and Egypt.
“We haven’t concluded this matter. It is still in the discussion stage. There is both a technical and a financial aspect to it. This is not something that [doesn’t entail] certain financial burdens, extending networks, and costs for these units,” the PM said, though adding the discussions are “serious.”
“We, as Iraq, have to be connected to [electricity] grids just like the countries of the world,” he emphasized.
Iraq does import electricity from Iran, but there needs to be greater interconnection with other regional countries, the PM posited.
Iraq’s electricity grid is aging and strained by an increasing population, reconstruction and development. Usage also peaks in the summer months as temperatures in the south soar over 50 Celsius. The hours of government-produced electricity varies greatly across Iraq and the Kurdistan Region by geography.
Oil and gas disputes with Baghdad to be addressed once new KRG cabinet formed
Sangar Ali | 8 hours ago Share share
An oil field in Nasiriya, in southern Iraq. (Photo: Reuters/Atef Hassan) Kurdistan Iraq Erbil Baghdad Oil Gas A+AA- ERBIL (Kurdistan 24) – A delegatiom from the Kurdistan Regional Government (KRG) will visit Baghdad to discuss disputes over Iraqi oil once the new Kurdish government is formed, a member of parliament in the Iraqi capital said on Wednesday.
Oil and gas shares and distribution have been the subject of a long-standing dispute between the KRG and the federal government of Iraq since 2003.
Following the formation of the new Iraqi federal government in Oct. 2018, both Erbil and Baghdad agreed on the 2019 national budget bill, which requires the Iraqi government to deliver the salaries of KRG employees along with some financial compensation as the KRG hands over the export of 250,000 oil barrels per day (bpd) to the Iraqi oil marketing company – SOMO.
Since the beginning of this year, the Iraqi federal government headed by Prime Minister Adil Abdul-Mahdi has delivered the salaries of the KRG employees on a monthly basis, but the KRG is yet to deliver the prescribed amount of oil to Baghdad as indicated in the Iraqi national budget bill.
Over the past few weeks, many Iraqi lawmakers have complained in parliament about the delayed KRG oil transfers, questioning the silence of the Iraqi government in that regard.
On Tuesday, Abdul-Mahdi, for the first time, issued a warning to the KRG for failing to meet its commitment in the delivery of oil to Baghdad. The warning came after pressure from multiple factions in the Iraqi parliament.
A lawmaker for the largest Kurdish faction in the Iraqi Parliament says that once the new KRG cabinet is formed, which is expected to happen in June, an oil and gas delegation from the KRG will visit Baghdad to hold talks.
“Today [Wednesday], we, as a group of Kurdish lawmakers, met with Abdul-Mahdi for a short period to discuss the matter. We couldn’t discuss things in details, but agreed that it would be best for the KRG delegation to visit Baghdad and address the issue,” Aram Balatayi, a member of Iraq’s Oil and Gas Parliamentary Committee, and spokesperson for the Kurdistan Democratic Party (KDP) faction in Iraqi Parliament, was quoted as saying on the party’s official website.
“The Kurdistan Region has an obligation to hand over the oil to Baghdad,” he continued.
“For more than ten years, the Kurdistan Region put effort into and created policies for its oil sector, so it is not easy to now seamlessly hand over the industry to Baghdad. Either the Iraqi government should pay dues of oil companies in the region, or the Kurdistan Region has to sell its oil to pay off those dues. Kurdistan can’t just hand over the oil to Baghdad and Baghdad then refuse to pay the companies.”
Balatayi noted that both Erbil and Baghdad could reach an agreement on who would pay the dues and debts of those companies. If it is the KRG, then the Kurdistan Region “has to continue selling its oil,” but should Baghdad decide to absorb those financial obligations, “then this is another subject, and we will have our say at that moment.”
The Kurdish lawmaker also noted that Kurds do not have a representative in Iraq’s SOMO and are not sure if they would be given a seat at the table to represent their interests.
“There is still an ideology of centralizing power in Baghdad. We have issues with that, and a mechanism should be developed to deal with this,” he added.
Gulizar Rashid Sindi, the deputy head of the Kurdistan Region’s Energy and Natural Resource Parliamentary Committee, stated that both the Kurdistan Parliament and the new KRG cabinet should cooperate in this regard.
“The Kurdistan Region urges the resolution of the energy question through dialogue and the proper mechanisms,” Sindi told the official KDP website.
“The Kurdistan Region will not be bound by Baghdad’s request if it isn't in the interest of the people of Kurdistan.”https://www.kurdistan24.net/en/news/d227436b-1f58-4cc9-b560-4c8e64843239