Beset by a rich but complicated history, the Republic of Iraq's petroleum industry dates back to the grant of the first oil exploration concession by the Ottoman Empire. According to the Organization of the Petroleum Exporting Countries ("OPEC") Iraq's proven crude oil reserves are approximately 145 billion barrels, the fifth largest in the world and the republic is host to several proven "supergiant fields" - those containing equivalent of 5.5 billion barrels of oil reserves.

Iraq also holds approximately 2% of global natural gas reserves. Much has been written on the protracted political debate concerning ownership and control over oil and gas reserves in the semi-autonomous Kurdistan Region in northern Iraq, including the legality of its independent regional government (the "Kurdistan Regional Government") and its relationship with the central government in Baghdad (the "Federal Government of Iraq"). Against this backdrop, this article looks at the latest official statement from Iraq's Prime Minister which announced that a new unified oil and gas law has been drafted which seeks to unify, and importantly federalise, regulation of the entire petroleum industry in all governorates, including the autonomous Kurdistan Region.

Iraq's Constitutional Framework

Before considering the proposed new unified legislation, it is necessary to first provide brief context in the form of a non-exhaustive chronology on the evolution of the current landscape for regulation of petroleum resources in Iraq. The current and primary legal framework regulating the oil and gas sector in the Republic of Iraq is the Constitution of Iraq, which entered into force in 2006 following a referendum approved by the Iraqi people on 15 October 2005. The interpretation of the two principal provisions of the Constitution which seek to regulate the exploration, development, exploitation, marketing and management of oil and gas and subsequent revenue distribution, are in dispute between the Federal Government of Iraq and the Kurdistan Regional Government.

Importantly, at the time of writing, there is no federal oil and gas legislation in Iraq, albeit that the concerned provisions of the Constitution actually require the enactment of a law to regulate the oil and gas sector. A draft oil and gas law was approved by the Council of Ministers in 2007 and later revised in 2011, however, it was never enacted owing to differences over its terms. In the same year, attempts were made to pass a law allocating oil revenues to the regions, called the "Law of Financial Resources", similarly, this was never enacted.

The Kurdish Legal Framework

In 2007, the Kurdistan Regional Government enacted Oil and Gas Law No. 22 ("Law No. 22") to autonomously administer oil and gas operations in the Kurdistan Region of Iraq. In the absence of a federal oil and gas law, the Kurdistan Regional Government relied on Law No. 22 as the legal basis for entering into production sharing contracts ("PSCs") with international oil companies, crude oil export agreements with Turkey as well as oil purchase agreements.

On 15 February 2022, the Federal Supreme Court of Iraq issued a profound decision which established that Law No. 22 violates the Constitution of Iraq and was therefore unconstitutional. Significantly, it was further ruled that the Federal Government of Iraq was permitted to pursue the nullification of any contracts (which would include PSCs) concerning the exploration, production, export and/or sale of crude oil from Kurdistan between the Kurdistan Regional Government and foreign states or international oil companies, a ruling which aligns with the Federal Government of Iraq's preferred model of contracting, which is technical services contracts.

Recent Developments

In 2018, the "Iraqi National Oil Company Law No. 4 of 2018" was passed. In 2019 the Federal Supreme Court ruled that a number of provisions were unconstitutional and impossible to implement. While it remains to be seen whether the new draft petroleum legislation will be implemented by the Federal Government of Iraq, it is likely to be an important development for the Iraqi oil and gas sector and significant for international oil and gas companies which intend to invest in exploration and production activities.

At the same time as the recent positive announcements around federalising the current bifurcated energy industry, Iraq has successfully encouraged a significant increase in foreign investment in the petroleum sector, including:

  • the historical signing of a USD 27 billion energy deal with French giant TotalEnergies;
  • Saudi Arabia and the UAE committing USD 6 billion investment in Iraq; and
  • Qatari companies entering into agreements with a combined value of USD 16.5 billion with a further USD 5 billion pledged from the Government of Qatar.

The foregoing investments are further supported by the Iraq Ministry of Oil announcing 11 gas exploration sites as part of the latest upstream licensing rounds.

Brodies Middle East LLP Partner, Josh McFadzen, is well placed to advise state owned and international oil companies with activities in the Iraq oil and gas sector, having been a site based lawyer for PetroChina International at the Halfaya Oilfield in the Maysan Provence of southern Iraq.

Contributors

Jenna Kidd

Associate, Brodies LLP