Global Policy Forum

Iraqi Oil Wealth Stays Locked Up


Draft Law Shows Hurdles to Entry For Foreign Firms

By Chip Cummins and Hassan Hafidh

Wall Street Journal
February 20, 2007

Foreign technology and capital are seen as vital to restoring Iraq's crumbling oil industry. But as a draft petroleum law inches its way toward the Iraqi parliament, fresh opposition to the legislation is emerging, underscoring the difficulty that may still lie ahead for any move to invite in international oil companies.

A petroleum law could provide a significant political boost for Iraq's shaky government, by setting down how money from newly developed fields would be shared among the country's three dominant ethnic regions -- the mostly Kurdish north, the Sunni center and the Shiite south. Reaching an agreement on sharing Iraq's energy resources, by far the nation's major source of wealth, will be critical to achieving long-term peace in the war-torn country.

U.S. officials and petroleum experts have been advising Iraqi politicians almost from the start of the American occupation nearly four years ago about how to build a legal framework that would enable foreign oil-field development. International majors have been reluctant to venture into the country until violence subsides and before politicians endorse a law spelling out legal rights and financial terms for foreign firms.

In recent months, Iraqi politicians have made some progress. In its current form, the legislation envisions the re-creation of an Iraqi state oil company, and it gives broad latitude to officials from the country's various regions to encourage foreign investment and development. Kurdish officials had balked at earlier provisions calling for specific federal approval of development deals between regional governments and foreign firms.

The Iraqi cabinet discussed a revised draft of the petroleum law late last week. The cabinet is expected to meet perhaps as early as this week to take up the issue again, according to Assem Jihad, a spokesman for the Ministry of Oil in Baghdad. If the cabinet agrees on a working draft, it would be forwarded to parliament for debate and ratification.

The legislation still faces significant political hurdles. Earlier this month, an influential union of oil workers in the country's south said it will oppose the legislation. In a speech to more than 200 delegates at a conference in Basra in early February, union leader Hassan Jumaa condemned the legislation as opening Iraq's oil wealth to foreign exploitation.

"History will not forgive those who play recklessly with our wealth," he said. "We consider the new law unbalanced and incoherent with the hopes of those who work in the oil industry. It has been drafted in a great rush in harsh circumstances."

The rhetoric echoes the sentiment of many everyday Iraqi citizens. The nationalization of the Iraqi oil industry in the 1970s under Saddam Hussein remains a point of pride for many Iraqis, and opposition still runs deep to any hint of foreign interference.

Also, opposition has emerged from prominent former Iraqi oil officials, who have recently fled the country's chaos but continue to hold some sway in Baghdad's oil bureaucracy. Because of the escalating sectarian violence and political polarization, these officials fear, rushing through a petroleum law could cause more harm than good to the industry.

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