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Sharing Iraq's Oil: Analyzing Production-Sharing Contracts Under the Final Draft Petroleum Law

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Abstract

For more than a year Iraq's Central Government (ICG) has been attempting to pass its first post-invasion national petroleum law (Oil Law). If passed by the Iraqi Council of Representatives, the Oil Law will provide the legal framework for the future exploitation of Iraq's vast oil wealth. First approved by the Council of Ministers in February 2007, the final draft Oil Law was submitted to the Council of Representatives for an expected vote in May 2007. With no vote in May, a slightly modified version was resubmitted to the Council of Representatives in July 2007, where it has been fiercely debated. A deal on the Oil Law had apparently been reached, but imploded when the Kurdistan Regional Government (KRG) passed their own regional oil law in August 2007, and the Sunni coalition in the Council of Representatives pulled out of the deal. There is little hope that the law will be passed, or even voted on, in the near future. Although the political reconciliation needed to pass the Oil Law is failing, the law is an important piece of legislation that will eventually play a crucial role in the reconstruction of the oil industry in Iraq. The proposed law authorizes oil sector privatization in the form of production-sharing contracts, or PSCs. Under the new Oil Law, PSCs permit foreign oil companies (FOCs) to sign contracts directly with the ICG to develop specific areas of Iraq's petroleum sector in exchange for a share of the oil profits. Iraq's oil sector has been greatly damaged by decades of conflict, and is now in need of massive redevelopment, foreign investment, and expansion. Through minor modifications to the Oil Law, moderated FOC involvement will be greatly beneficial to Iraq, while at the same time giving an equitable share of the oil profits to the FOCs for their contribution.

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... Until the Middle Eastern oil nationalization movement of the 1970's, oil resources in Iraq were dominated by oil companies from the West. Since then, the access to the reserves of the Persian Gulf region has been limited (Behn, 2007). ...
... In 1968, the Baath Party came to power and started to control Iraq's territory and government until the War of 2003. In 1972, Saddam Hussein as Assistant General Secretary of the Baath Party, nationalized the remaining of the IPCs assets, completing the nationalization process of oil in Iraq (Behn, 2007). ...
... Saudi Arabia, the largest oil-exporting country in the world, producing nearly 11 million bbl/d. Iran comes in the second place of proven reserves with a current production of approximately 4.2 million bbl/d (Behn, 2007). ...
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This article provides evidence on the economic and social importance of the oil sector in Iraq. Existing literature allows to understand the background, context and institutional framework that regulate the oil sector, the main implications and limitations for its development , and the impacts of the current confl ict on human development. By using a comparative analysis of diff erent secondary sources and statistical databases, the results show that Iraq has one of the largest oil reserves in the world; and the challenges that Iraq faces in order to overcome mismanagement of the sector, the underdevelopment of the infrastructure , the gap in the human development and the internal war.
... The story begins from that point, when the foreign reserves and government spending increases due to an increase oil revenue. The Iraqi economy depended on oil revenue and its contribution to GDP is significantly high, and the oil sector became the main economy sector that drives other tradable and non-tradable goods sectors(Al- Chalabi 2007;and Behn 2007). The huge increase in Iraqi's wealth has considerably enlarged the opportunity for effective economic development in the country. ...
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This paper lays the foundation of what Production Sharing Agreements are, what they were intended to be, and how they have failed to meet the current requirements of the State and, in turn, have ended up exploiting the economic resources of the countries by not giving the State their rightful due. Moreover, this paper highlights the consequences of implementing the Production Sharing Agreements in two major oil producing States namely Nigeria and Russia. Subsequently, an earnest attempt has been made to bring to light the flaws of the Production Sharing Agreements accompanied with the inefficiency of the States to amend their respective laws according to their economic requirements.
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