Maliki and the Kurds: An Apparent Fudge on Oil Exports, by Reidar Visser

January 27, 2011 at 6:41 pm | Posted in Turkmens | Leave a comment
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Maliki and the Kurds: An Apparent Fudge on Oil Exports

Posted by Reidar Visser on Thursday, 27 January 2011 15:10

Among the first moves of the new Maliki government has been an agreement with the Kurdistan regional authorities (KRG) to resume oil exports from fields in Kurdistan operated by foreign companies that have cut separate deals with the KRG previously. Exports are supposed to start as early as 1 February.

So far, relatively few details about the agreed arrangements have been revealed. Baghdad has reportedly agreed to lower the minimum export requirement for Kurdistan in the annual budget to 100,000 barrels per day (it was originally 150,000 bpd, which the Kurds found somewhat steep), and unlike the previous attempt at starting export in the summer of 2009, Baghdad will this time pay a “contribution” (musahama) towards covering the expenses of the foreign companies that operate in Kurdistan. So far, the exact size of the payment has not been specified, but according to Asim Jihad of the Iraqi oil ministry it will be paid to the Kurdish regional authorities rather than directly to the foreign companies, and there are certain “barter” elements to the deal as well, including improvements to the refining capacity and electricity supply of Kurdistan plus provision of oil for the local market in Kurdistan.

Thus in legal terms, it seems as if the stalemate regarding the contract status of the foreign companies is continuing as before. The Kurds are reluctant to formally submit the contracts to Baghdad for approval since that would mean not only potential challenges to the contract terms but also cession of what the Kurds believe is their sovereign right to conclude such deals with third parties. Baghdad, for its part, is reluctant to pay the companies that operate in Kurdistan directly according to the contract terms, since that would mean recognising the right of federal authorities to sign deals with foreign companies without coordinating with Baghdad – which in turn would mean that not only federal regions but in fact every governorate across Iraq could do the same thing. Since federal regions and governorates have exactly the same residual rights under article 115 of the constitution, it would be potentially suicidal for the central government to admit a residual power to sign contracts for so-called “future fields” without coordination with Baghdad. Under this kind of permissive scenario, Basra, Maysan and Anbar would suddenly negotiate with foreign companies without reference to Baghdad. It seems far more likely that Baghdad is aiming for a restrictive interpretation of article 112, second, that would require coordination with the oil ministry for all future deals as part of the national “strategic policy” on oil – and instead will opt for for temporary, horse-trading solutions of the kind now agreed with the Kurds in the short term while it is working on boosting its own export capacity, which will still take some years.

Thus unlike what happened in 2009, money will this time be paid from Baghdad to Kurdistan, and presumably the Kurds will then pay the operating companies. The problem for the Kurds is that as long as the contracts are not submitted for review (as opposed to just making them public), Baghdad will continue to pay Arbil with reference to its own assessment of reasonable costs rather than in accordance with the lucrative terms of the contracts. Whether this in the long run is actually good enough for the Kurds – and not least their foreign partners – remains to be seen. Clearly, the foreign companies that operate in Kurdistan are not there in order to do non-profit work forever, and the Kurds will be under pressure to pay them more generously instead of simply compensating them for expenses. Other potential hitches regarding the new arrangements relate to parliamentary oversight: Presumably the compensation payments are to be specified in the annexes to the 2011 budget to be debated in February, and presumably the payments due to be transferred to the Kurdish ministry for natural resources as part of the deal will be subject to parliamentary debate in the Kurdish regional assembly as well, where the PUK and Gorran have a history of asking critical questions about the KDP-led oil policy.

Nonetheless, this deal represents an interesting move for the new Maliki government, where a key question since December 2010 has been whether Maliki will lean more towards the Kurds or Iraqiyya in hammering out his policies. Based on the latest move by Maliki to attach the independent commissions to the government, one can start wondering whether he actually has a viable grand strategy at all. He can afford to alienate either the Kurds or Iraqiyya, but not both at the same time. This holds true for the oil sector as well.

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