Saturday, February 03, 2007

Tracking Oil: Federalism, Revisited

Since the first days of the OIF, so many have had ideas about how Iraq should manage its oil revenues, to avoid the curse of oil in relation to economic and social development. It would be a hoot to re-read old WSJ articles, with the best economic thinking on the topic, now so hopelessly ... dated.

These days, everyone is simply hoping that the third in a line of governments will have some agreement - any agreement - in order to stop violent disagreement.

Condi Rice testfied recently that the 'oil agreement' was completed and just needed to be finalized. Here are the outline details of the draft law, reported to date:

  1. Revenue will be "shared" on a per capita basis. (for more on ambiguity of "sharing", see below)
  2. Contracts (for development/operation) may be signed regionally, but will reviewed centrally (this looks like an almost unworkable set-up to me).
Outstanding issues include
  1. how much oil revenue will go to the central government (a.k.a. the revenue sharing law);
  2. a charter for the new national oil company;
  3. the role of the oil ministry;
  4. the principles upon which the new commission could reject regionally negotiated contracts.
  5. whether the commission will require a simple majority vote or a two-thirds vote to reject a contract's terms.
KRG Statement
WaPo Analysis

And the politics is more vexing than ever:
For now, however, the oil sector is a mess. Since the first attack on a pipeline on June 1, 2003, it has been a struggle to keep oil flowing. Basic production equipment has been looted or destroyed. Many wells still are not working properly. And last year, the U.S. special inspector general for Iraq reconstruction complained that Iraq's oil ministry was not reporting on its budget and had spent "only a fraction" of money set aside for capital costs.


Placke, who was part of the Iraq Study Group, estimated that 200,000 barrels a day is siphoned from the main export line through southern Iraq, put on barges, and loaded onto tankers waiting in the Persian Gulf. What's left after discounts and bribes goes to militias or insurgent groups, he said.

In the south, some local Shia militia, clan or clerical groups are trying to claim the rights to some Iraqi fields and a voice in negotiating access for foreign companies. A stake in a billion-barrel field could be more important than a stake in the parliament or cabinet. Some experts worry that, as in Sudan, oil could contribute more to tearing the country apart than to uniting it.


While the debate continues, the Kurdistan Regional Government is pushing ahead.

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