Energy, Federalism, the Constitution and Iraqi Unity

The great achievement of post-Saddam Iraq is its transition from a centralised and mainly Sunni dominated one-party rule to federalism and power-sharing between Sunnis, Kurds and Shia, and small minorities. All this is, or should be, governed by the constitution, approved by over 80% of the people in a referendum in 2005.

However, the constitution is largely ignored in Baghdad by a Prime Minister accruing authority through subterfuge by, for instance, appointing military commanders on a supposed temporary basis which bypasses parliamentary approval.

The health of power-sharing in Baghdad has worsened dramatically since American troops quit in December 2011, with Kurdish energy resources a main victim of the dysfunctional federal government in Baghdad.

Baghdad recently defaulted again on agreed payments for oil exports, which were halted. Baghdad’s sabotage of the Kurdish part of the Iraqi economy undermines Iraq’s unity and the constitution.

Baghdad repeatedly issues threats to cut the Kurdistan Regional Government (KRG) budget. There is even talk that Kurdistan should go its own way: “good riddance” as one senior member of the PM’s coalition put it recently. They should be careful what they wish for. Iraq as a whole would be immeasurably poorer without Kurdish political, cultural and economic contributions.

The Kurds are not planning independence but are determined to continue their economic miracle by exporting energy via new pipelines, with or without the consent of Baghdad and soon.

The current pipeline from Kirkuk-Ceyhan in Turkey should carry 1.6 million barrels per day (bpd) but can only carry around 1.2 million bpd of light to medium and heavy crude. Yet the KRG expects to export at least 2 million bpd. Furthermore, exports from Kirkuk and surrounding fields could increase from around 400,000 to 1 million bpd. The northern corridor oil export capacity should be increased to 3 million bpd by constructing two new pipelines from the KRG direct to Ceyhan.

This infuriates Baghdad which claims that the KRG is acting illegally. Turkey fears that Baghdad’s threats to isolate the KRG and cut its budget will undermine stability and Iraqi unity. Autonomous Kurdish oil exports could make Baghdad reasonable. American policy could be decisive but is unclear.

The impasse is best resolved by returning to the 2005 constitution. Constitutions are dry documents but form the basis of transactions, not least given a history of caprice, centralisation and brutality in Iraq.

The constitution states that Iraq is a federal state, binding on all parts of Iraq. Baghdad’s refusal to implement proper power sharing, revenue sharing, and resolving the status of disputed territories undermine the constitution and Iraqi unity.

The constitution specifies Baghdad’s exclusive competences as: foreign policy; national security and defence policy; fiscal and customs policy; standards, weights and measures; citizenship and immigration; broadcasting and postal policies; budget; planning of waters flowing to Iraq; census and statistics. The constitution specifies that management of customs; generation and distribution of electric energy; environmental policy; development and planning policy; public health policy; educational policy; internal water resources policy are shared between federal and regional authorities.

The constitution recognises Kurdistan and its existing authorities. Its legislation, government decisions, court decisions and contracts enacted since 1992 are valid unless amended in Kurdistan or unless they contradict the constitution. Regional powers, outside defined federal roles, cannot be taken away without the approval of the concerned region’s legislature and a majority in a referendum.

The KRG can exercise all powers, particularly internal security, except for exclusively federal ones. It should receive an equitable share of national revenues. Federal law prevails on exclusive issues but regional law comes first on all others.

How does all this relate to oil and gas? The constitution stipulates that Baghdad, together with producing governorates and regional governments, undertakes the management of oil and gas from present fields. Crucially, they should together “formulate the necessary strategic policies to develop the oil and gas wealth in a way that achieves the highest benefit to the Iraqi people using the most advanced techniques of market principles and encouraging investment.”

In relation to energy “extracted from present fields,” Baghdad has a management role, with three important qualifications. Management is jointly undertaken. This role is limited to transportation, export and marketing. And revenues are fairly distributed.

This means that the operational management of extraction and production falls outside the federal role in any joint management. The clear inference is that present production includes fields developed in 2006, when the constitution begun.

But new finds are outside Baghdad’s control and for relevant governorates and regional government to manage. The KRG accepts that oil and gas are owned by all Iraqis but that they can determine how ownership is managed.

Baghdad has legislative authority and the constitution does not stipulate that contracts for present or future fields wait until strategic policies are agreed. Baghdad doesn’t have a constitutional veto.

The KRG can decide, subject to strategic policies jointly agreed with the federal government, on the terms and conditions for new fields. Baghdad has no such rights over new fields although Kurdistan could co-operate with the federal government.

Although the constitution gives Baghdad only a qualified right on transportation and marketing oil and gas extracted from present fields, the KRG has so far accepted a broader management role for Baghdad but may not do so in future without revenue sharing and a constitutionally correct hydrocarbons law.

This year will be one of reckoning for Iraq. Warmer relations between the Kurds and the Sunnis as well as between Kurdistan and Turkey illustrate that divisions can be overcome when economic self-interest and political will are combined.

Ancient strains and stresses are being exacerbated by the current PM. If the Iraqi Parliament’s decision to limit him to two terms is enacted, he will go in a year or so. That could allow Kurds, Shia, Sunni and small minorities, to make a federal Iraq work. The constitution is the country’s unity certificate and should be implemented.

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