The Iraq Hydrocarbons Law, 2007

A Quick Guide

An early draft of this law was prepared with the help of the US consultancy group, Bearing Point, and was circulated around the White House, the major oil companies, the UK and the IMF before the Iraqi government saw it. Later the draft law was worked on by a three-member Iraqi cabinet committee, dominated by Shias and Kurds.

The law has been described by Ewa Jasiewicz of Platform, British human rights and environmental group that monitors the oil industry, thus: "Drafted in secret, shaped by foreign powers, un-transparent, undemocratic, and forced through under military occupation... It will be viewed by most Iraqis as not just illegitimate, but a war crime."

The main features of the law are:

1. Two-thirds of known oil reserves are to be developed by multinational oil companies under contracts lasting for 15-20 years. There are 51 oil fields, 27 in production and the balance with proven reserves, as well as 65 exploration blocks.

2. The idea of "production-sharing agreements" has been adopted (for PR reasons renamed Exploration and Risk Contracts). This form of agreement is rare since the 1960s, non-existent in the Middle East, and a relic of colonial days. It gives foreign oil companies first claim on the revenue from any oil they help extract from the country's reserves, estimated at 115 billion barrels, nominally on behalf of the Iraqi government's resuscitated National Oil Company. The re-establishment of this company, closed by Saddam in 1987 and the operations transferred to an Oil Ministry, is the first step towards the establishment of joint ventures, and then towards the entire sale of the industry to the foreign oil giants. The oil technically remains in the ownership of the Iraqis, but this ownership is nominal.

3. There is no provision for Iraqi Government oversight and no transparency. The original requirement for oil contracts to be published 2 months after signing has been dropped. Thus most contracts will be written and agreed in secret.

4. There is no minimum level set for State participation in oil contracts, and no ability of the government to stop or reduce the transfer of profits out of the country.

5. Contracts are to be allowed between Iraq's individual regional administrations and foreign oil companies, giving the companies up to 70% of the revenues, and unrestricted rights of repatriation without having to re-invest in Iraq. It potentially sets region against region. It has been estimated that a restored oil industry could triple current production (about 2 million barrels, most of it stolen or sold on the black market) to 6 million barrels a day, worth $131 billion a year at current prices.

The implication can be read into this that the Bush administration expects Iraq to break up into its three component parts.

6. The oil companies have the right to set rates of production for each field, without consultation.

7. Those oil revenues not attributable to the oil companies will be distributed to all 18 provinces based on population size. The Sunnis have received concessions at the expense of the Kurds, since their regions have less oil. The point is that, however much is distributed, it is a fraction of what Big Oil is taking out of the country.

8. Article 41 states that companies do not come under Iraqi law if there is a dispute, nor will they be accountable to a general auditor. Any disagreements have to be settled in Paris or Geneva.

9. Russian, French and Chinese oil companies, which had contracts under Saddam, will have their contracts "reviewed".

10. Oil companies will have seats on the new Federal Oil and Gas Council, where they themselves could help decide policy on contracts. Decisions on the fairness of contracts is removed from public or parliamentary scrutiny.

11. There is no Iraqi minimum content in terms of goods and services bought by the oil companies that might benefit the general population. The oil companies can import labour and goods at will.

12. Iraq is, of course, to stay out of OPEC.