Iraq law delays foreign oil deals

17 May 2011

Failure to impose legislation that will ease the path for international oil companies is slowing projects

Prime Minister Nouri al-Maliki set himself a difficult task on 27 February, giving his government 100 days to improve their performance or face the sack. With only 19 days left to make good on his pledge, the outcome does not look promising.

In charge of Iraq’s most precious resource, the performance of the Oil Ministry will be under particular scrutiny. Despite the signing of numerous contracts to boost oil production, Iraq’s energy sector is failing to meet the needs of ordinary citizens.

A preliminary agreement, signed in late-2008 between the Oil Ministry and UK/Dutch Shell Group to utilise flared natural gas in the south of the country, will be a test case for foreign involvement in the oil sector. The deal is controversial and has met with legal challenges from Iraq’s parliament. With Iraqis preparing to face another sweltering summer there will be more pressure to push the project through. If it can be approved, it will ease the path for other international oil companies (IOCs) working in the country as they face up to challenges from the parliamentary oil committee.

The problem stems from the lack of an overarching oil law. Iraq has been muddling through without this key piece of legislation, which would define the roles of the Oil Ministry, provincial and federal government, as well as IOCs, since the toppling of Saddam Hussein in 2003.

A draft law was proposed in 2007, but was later blocked by political wrangling in parliament. The effects of four years without it are becoming clearer. In Baghdad, they all agree on its necessity, but not on its contents. Until the issue is settled, Iraq’s existing contracts and future agreements with foreign oil companies will continue to be challenged.

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