RECONSTRUCTING THE GOVERNANCE OF IRAQI OIL (2003-2013) – Distribution of Oil Revenues Among Kurdistan and Iraq’s Provinces

This thesis aims to characterise Iraqi oil governance, particularly the regional distribution of oil revenues between 2003 (the toppling of Saddam Hussein) and 2013. It explains the mechanisms which have been established to distribute oil revenues across the regions of Iraq. These revenues have been especially crucial to Iraq as it has sought to rebuild following the 2003 invasion, but throughout this period, they have also been a source of dispute between the center government, Kurdistan and other Iraqi provinces. The importance of these issues to Iraq’s economic development, and the fact that they have not yet been investigated in any other academic study (indeed, there is little literature about regional oil/gas revenue distribution generally) are what have motivated this research.
In order to understand how oil revenues are distributed it is first necessary to investigate how they are collected. Accordingly, the thesis starts by characterising Iraq’s petroleum fiscal regime. This is done by calculating the discounted cash flows for the West Qurna oilfield, which is operated under a Technical Service Contract (TSC) with the central government, and then comparing these with the performance of fields operating under Production Sharing Contracts (PSCs) signed by Kurdistan’s Regional Government (KRG). The thesis then goes on to characterise the regional distribution system. To do this, it draws on budget law, the draft oil and gas law, the national constitution, contracts signed with international oil companies and socio-economic data relating to Iraq’s provinces. The study also makes use of secondary sources in both Arabic and English. Finally, in order to gain a deeper understanding of the reconstruction of oil governance and the current regional distribution system, a series of semi-structured interviews were conducted with key players in the reconstruction process.
The results show that the governance of Iraqi oil has changed in many ways since 2003, and with it the system for distributing oil revenues among regions. Both the collection and distribution systems are politically driven, with preferential treatment being given to Kurdistan to prevent it from seeking independence. Even so, Kurdistan continues to act as a devolved and independent region and to demand full control over the collection of its oil revenues (petroleum fiscal regime). It is also demanding that its share of the total budget not be reduced like that of other provinces. The result is a distribution system which, because it ignores provincial socio-economic indicators and creates inequality between Kurdistan and other Iraqi provinces, is fostering resentment in oil producing and non-oil producing provinces alike. The danger is that this inequality among provinces may widen in the future if the government does not install some sort of equalisation system. Other oil-rich provinces may even follow Kurdistan’s example and demand greater autonomy or even independence. Such a fragmented Iraq would struggle without the revenues from the oil-rich provinces.