Oil, Power and Democracy in Iraq: Can They Be Reconciled?

The following article was written by Keith Myers* of Richmond Energy Partners and was first published on the Revenue Watch Institute website on 9th May 2012.

Can the Iraqi parliament overcome sectarian rivalries and fears to fulfill its role as a legislative and oversight body? Having led a series of workshops with members of parliament over the past nine months, there are glimmers of hope, but it is hard to be anything other than pessimistic.

Iraq has over 150 billion barrels of oil reserves, placing it among the top four oil-rich nations in the world, alongside Iran, Saudi Arabia and Venezuela. Iraq could become the largest incremental source of oil supply for world markets over the next decade. This oil generated $90 billion in revenues in 2011, and Iraq has the potential to quadruple production from the approximately 2.5 million barrels it now produces daily, to more than 10 million barrels a day—a rate on par with Saudi Arabia. Oil accounts for 93 percent of Iraqi government revenue and its management and fair distribution are central to political discourse. Yet, Iraq has been hindered by its inability to agree upon key policies and pass the legislation needed to manage its oil, such as an oil and gas law and a revenue management law which were first tabled in parliament in 2007, four years after the removal of Saddam Hussein.

The transparency initiatives that Western governments and NGOs champion as a solution to mismanagement and corruption are well-intentioned but miss the real issue Iraqis are struggling with: how power is distributed and exercised within the Iraqi state.

In a petro-state, whoever controls the oil, controls the power. The political conflict in Iraq boils down to how control over oil should be allocated. The 2005 Constitution envisions a federal Iraq that divides power between a federal government, state-level governates and the semi-autonomous Kurdish region—a balance of power that would prevent a return to dictatorship, with no individual or faction having a monopoly control of Iraq’s oil.

Since the last election and the formation of the Maliki-led coalition government, a strong Kurdish regional government has evolved alongside a dysfunctional and increasingly autocratic federal government in Baghdad. The governates, seeing the benefits that autonomy has brought the Kurds, want it for themselves, or at least a larger share of oil revenues.

The conflict between the “centralizers,” who see the federal government as the ultimate national authority, and the “devolvers,” who view the federal government as having more limited powers and being accountable to the regions and governates, has manifested in the inability of the parties to agree upon the necessary oil and gas and petroleum revenue laws. These laws are fundamental to how Iraq generates and distributes revenue, and drafts of both have been in parliament since 2007. The Constitution is key, as it is meant to define how power is distributed in the Iraqi state, and it is constantly referenced by parliamentarians. However, its open-ended language leaves room for interpretation on critical policies and issues, highlighting the need for a supreme court to interpret constitutional matters and a federal forum for determining policy that includes Kurdistan and the governates.

There is also an ideological component to political divisions. Some “devolvers,”—particularly Western-educated émigrés who often return with a liberal economic agenda—favor privatization, while “centralizers” prefer to maintain state participation throughout the energy sector.

After three workshops over nine months, I find it hard to be optimistic that a resolution is in sight. On day two of the third workshop, an independent Shia MP, a respected Sheikh who has been critical of the government, failed to join us in the meeting room. His house had been bombed overnight. After confirming that no one was hurt, he rejoined the meeting, stoic but shaken. He spoke no English, but was clearly well-respected by his colleagues for his commitment to service, demonstrated in his constructive contributions to the workshop. The day before his house was bombed, he had told a joke about a Kurdish language teacher working in Baghdad who translated the Kurdish word for “would” for his students—translating it instead as the Arabic word for “shouldn’t.” “But surely it means ‘would,'” the teacher was asked. “Yes,” the teacher said, “but in Iraq what you would do, you shouldn’t.”

It’s a feeling of helplessness that was striking to our Jordanian facilitator, who noted that the MPs knew what was wrong, but felt powerless to effect any change. Asked what advice they would give to Libya following the revolution there, one female MP said, “Look at what we have done and do the opposite.”

There are some causes for hope, however. When working in small multi-party groups, individual MPs agreed on many key issues. The high proportion of MPs who are women—six out of 12 in the third workshop—was encouraging, and these legislators took the lead in choosing one of the three draft bills to push forward. It was a welcome show of equitable leadership in a country where only one government minister is a woman.

The political challenges can seem intractable and it’s hard to imagine a resolution of the current legal and regulatory vacuum anytime soon. It may take a new government and an amended Constitution, or even a new generation of leaders, decades down the line, to fix the problems of Iraq’s post-dictator oil power structure. This is a lesson for the countries of the Arab Spring.

*Keith Myers is a London based oil analyst, managing partner of Richmond Energy Partners and a Revenue Watch Institute Advisory Board member.

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