Farman Sadiq– Peregraf
Iraq’s Federal Supreme Court on February 15 ruled the Kurdistan Region’s Oil and Gas Law of 2007 as "unconstitutional," a decision that experts expect to prompt oil companies operating in the region to decrease investment and drive the Kurdistan Region towards an unknown future.
Iraq does not yet have an oil and gas law, driving the Kurdistan Region of Iraq (KRI) to develop its own oil policy relying on the Iraqi constitution, it has been independently exporting and selling oil through Turkey’s Ceyhan port and made deals with international companies that are worth billions of dollars.
The court also issued in its decision that the Kurdistan Regional Government (KRG) should hand over all produced oil to the federal government, give Baghdad authority to review, monitor, and rescind contracts with companies that explore, extract, export, and sell oil.
The decision was made relying on articles of the Iraqi constitution after two cases were filed against the KRG, one in 2012 by Ibrahim Bahr al-Uloom, the first and former Iraqi oil minister, and another by one of Basra's provincial council members in 2019.
"We have notified them before and there were efforts to solve it. Considering that Iraq is an OPEC member, it must have one oil policy the same as every other OPEC member country," Uloom told Peregraf over the phone, noting that both Erbil and Baghdad should export oil the same way.
Uloom said that there are "many" unresolved issues between the two capitals, including passing the oil and gas law, which has been sent to parliament since 2007 and hasn’t been processed so far.
"The new federal court has not only opened that case, but a number of other cases, and when political parties do not reach a solution there will be a legal gap, so they must speak out," Uloom said, calling for the establishment of an oil and gas council with membership from both sides to manage it with a mutual policy.
Uloom urged both sides to abide by the court's decisions to protect the unity of Iraq's territory and wealth and for both governments to take steps to implement it.
The decision was issued by a majority of seven out of nine votes, two judges who voted against it were Kurds. According to Article 94 of the Iraqi constitution, final decisions in resolving the disputes between the federal government, regions, and provinces are with the federal court, and all parties must abide.
Ali Tamimi, a constitutional expert, said that if the Kurdistan Region does not abide by the federal court's decision, the power has been given to the federal government to cut the region's budget.
"The federal court's decisions should be adhered to by all sides, not as some say we are resorting to the international court, which is inappropriate because Iraq is a sovereign country," he continued.
"The court relies more on Article 111 of the Constitution, which says gas and oil are the public property of all Iraqis, and Iraq is a federal country, not a confederal, so the Somo Company, which belongs to the Ministry of Oil, and it’s the only side that’s exporting oil," Tamimi said.
According to the article of the constitution, the federal government administers oil and gas extracted from oil fields with the regional government and the provinces producing them.
Ali Tamimi says Mustafa Kazimi's current government is the interim governing body and the implementing the court's decision will be by the next government. He added that they will either make "political agreements such as those who had previously agreed to the issue of the region's share of the budget for 250,000 barrels of oil per day, or reach a dead end."
The Kurdistan Region has strongly rejected the court's decision and considered it "unconstitutional." Nechirvan Barzani, the president of the Kurdistan Region, reiterated that "it is not applicable in practice and reality."
The KRG’s Council of Ministers on February 23 called the court's decision "unjust" and stressed they will fight for their rights and continue to reach an agreement with the Iraqi government.
Why now?
Sardar Aziz, a researcher and political analyst, believes that Baghdad is taking steps towards centralizing Iraq. "Kurdistan should have been aware of the decision sooner, and those in Baghdad were aware that Baghdad intends to centralize it," he told Peregraf.
"Iraqi political parties have not hidden it. In response to the effort, Kurdish leaders should have planned on how not to let Iraq doesn’t become a centralized country, which is through unity, facing corruption, better governance, which will have shown a poised region rather than the current dispersion that forces the region to compromise," he added.
Aziz also noted that the decision also has to do with internal conflict between the Shiites, and the Kurdistan Democratic Party (KDP) who has teamed up with the Sadir Movement and Sunni parties to form a government that Iran’s close allies are not a part of.
Bilal Wahab, a researcher at the Washington Institute agreed that the court's decision has to do with the new Iraqi cabinet formation. However, he believes that it is to "further weaken the KDP" as the oil and gas policy of the KRI is under KDP’s control and to send the message that the "KDP does not have ultimate power in the alliance."
Wahab also believes there is a consensus between the Shia forces and the Iraqi government that the Kurdistan Regional Government has treated the oil case as an independent state.
"Iraq is getting information on the region's oil case through intelligence agencies and companies, so what the region is doing is using its powers much more than what the constitution allows, the constitution discusses the co-management of oil and gas, which has led all Iraqi political forces to support the court's decisions," he said.
The federal court later published a clarification for their decision, saying that a U.S. court in 2015 had resolved a case in favor of the Iraqi ministry of oil because the Kurdistan Region had sold without permission from the federal government and decreed the oil ministry to find a solution aimed at managing the case according to the constitution.
"Even law experts agree that lawfully the court has hit its target and relies on a Texas court's decision, it wants to give legitimacy to the decision and give legitimacy to illegalizing of the region's oil case, but it is difficult to implement the decision," said Bilal Wahab.
The issue has also reached Turkey. The federal government of Iraq has filed a case against Turkey in a court in Paris for allowing the region's oil exports without Baghdad’s permission, according to Wahab, its final hearing is scheduled for July 2022.
"So far, Turkey’s answer is the Iraqi government has not said that selling the region's oil is unconstitutional, but according to the federal court's decision, Turkey’s stance towards the court will be weaker," Wahab explained.
The federal court ruling was not backed by some Kurds, while others strongly supported it due to their criticism of the KRG’s oil policy, but in return, there were other people who strongly opposed the decision.
"Now the Kurds are divided into two sides," said Sardar Aziz. "One side wants the government to remain the same and the other wants to have an opposition. If any of these two wins, half of the Kurds will lose in the equation, which makes the winning side weaker and unable to achieve what it has planned."
Oil investors backing out
"The decision will not be useful, because it has not selected the implementation mechanism. It should have said that the Iraqi parliament needs to pass the oil and gas law within the next two years, then the court's decision would be beneficial, both for the region and for the Iraqi government," Wahab explained.
Regarding the effect of the decision on major oil companies in the Kurdistan Region such as Chevron, Total Energies, and Gazprom, Wahab says they "may not invest and spend money in Kurdistan at this stage until it’s resolved."
Wahab noted that this decision will also affect banks where the oil money is saved, and other companies "such as the DNO and Genel Energy, who have spent money, and the Kurdistan Regional Government is indebted to them, Kurdistan is the only place on the world energy map they exist and they have profited, they will not leave, they will stay."
"I think the region will eventually compromise on this case and in some other cases for Baghdad because the Kurdistan Region sees oil as more of a political work, not the economy," said Wahab. "I don't believe it will compromise on managing oil with Baghdad, they may compromise on selling the oil."