The Kurdistan Regional Government’s (KRG) desire to attract foreign investment to take advantage of its hydrocarbon assets along with its longing to set itself apart from Baghdad has defined the reconstruction of its economy.

…The hydrocarbons law … will be necessary for a cohesive strategy to exploit the country’s reserves

In some respects, the Kurdish-controlled north is a good region to invest in. It has a stable security situation by Iraqi standards and the government is willing to push ahead with private investment and industrial diversification. In July 2006, the KRG ratified an investment law that was designed to appeal to foreign companies with customs relief, tax holidays and the freedom to repatriate profits.

As a region that sits on some of the biggest oil and gas reserves in the world, the KRG has much to offer private companies, but its biggest setback is its long-standing struggle with Baghdad over oil ownership.

Under the national constitution, the KRG receives 17 per cent of all Iraqi oil revenues. As a country with 115 billion barrels of proven reserves, the region’s share of the profits could be considered more than sufficient. But the KRG is keen to avoid conceding too much power to the capital. The reluctance is driven by political factors, but also by a fear of losing out despite having excellent oil resources.

The situation leaves private investors in a tricky situation. The KRG recently admitted to selling oil products to private companies, which in turn exported the oil to Iran. The Iraqi government responded by declaring these agreements illegal and blacklisted the companies that made agreements with the KRG.

While Iraq’s long-awaited national hydrocarbons law has slipped off the agenda, its revival will be necessary for a cohesive strategy to exploit the country’s enviable reserves. So long as the KRG and national government are conflicting, both sides will lose out – and the KRG stands to lose out the most.