The Role of Oil in Iraqi Politics
Yahia Said, Director, Iraq Revenue Watch Initiative, Open Society Institute; Research Fellow, Centre for the Study of Global Governance, London School of Economics
This event was cosponsored by the Middle East Program and the Program on Science, Technology, America and the Global Economy of the Woodrow Wilson Center, and Open Society Institute's Middle East and North Africa Initiative.
These days, the only product Iraq exports in greater quantity than oil is the raw fuel that drives Washington policy discussions. In a jointly hosted session by the Woodrow Wilson Center's Middle East Program and the Program on Science, Technology, America, and the Global Economy (STAGE), Yahia Said (Director of the Iraq Revenue Watch Initiative of the Open Society Institute and Research Fellow at the Centre for the Study of Global Governance at the London School of Economics) blended the two, explaining the role of petroleum in Iraqi politics. Kent Hughes, director of STAGE, chaired the session.
All conflict is in part a struggle over resources, Said contended, and certainly Iraq's oil is at least in the back of the minds of all parties involved in its reconstruction. To foster dialogue and seek solutions among these actors concerning Iraq's greatest resource, the Iraq Revenue Watch recently hosted an 8 day workshop in Beirut involving leading Iraq oil experts, ministry officials, politicians, and activists. Said reported a "surprising level of agreement" on several fundamental principles: 1) Iraq needs an effective oil industry, 2) this industry must be governed by a philosophy of equity, justice, and transparency, 3) and this must take place within a federal system.
Unfortunately, the Iraqi constitution has created a weak, decentralized system: a limited number of powers lie in the hands of the federal government, essentially leaving everything else in the hands of the regions – the management of petroleum falls confusingly in the middle. The constitution's critics point to its many ambiguities and the tensions those aggravate. It creates inequalities among the regions, as 85% of oil reserves lie within 4 regions, upon whose "mercy" and "goodwill" the majority of Iraqis find themselves financially dependent, especially as the constitution gives no assurance the federal government can independently raise its own taxes. The competition this fosters among the regions can lead to production and investment inefficiencies and also weakens their negotiating position in the global oil market.
Supporters of the constitution see here checks and balances, and a guarantee (especially to the Kurds) that oil revenue will never again fund oppression of minority groups. Said noted session participants agreed on certain points, such as the possibility of amending the constitution to create coordination mechanisms among the regions on oil, and all concurred that the federal government should mange pipelines, pricing policies, and apportionment among regions. Later in the Q&A, however, Said lamented that the central government faced difficulty in enforcing its policy decisions.
Said reported that policy debates about issues separate from the constitution were much less acrimonious. One concerned the exploration for new oil fields, which many argued was necessary as an equalizing mechanism among the oil-rich and oil-poor regions. Opponents pointed out that Iraq already sits on reserves in excess of 100 million barrels—enough to sustain the sector for a century. Said argued that the urgency for action here lay not in finding new reserves, but further down the production chain, as oil-rich Iraq wasted $4 billion last year importing petrol products such as kerosene and cooking gas. Production must also be ramped up, as Iraq is far from the pre-Kuwait War OPEC limit of 3.5 million barrels a day.
The Iraqis in Beirut agreed that the oil industry must be depoliticized, as 90% of the federal government's budget is derived from oil. Said suggested a Petroleum Council separate from oil ministry and operating companies. He also advocated greater transparency, but noted the many challenges standing in the way of more accountable officials, evidenced by the ineffectiveness of a current law requiring government officials to disclose properties and earnings. This law is universally disobeyed, and with good reason, as officials argue public knowledge of their worth would provide ready "price lists" for kidnappers. Said also warned against the dangers of selective transparency, and hoped to achieve consistency with an international solution by Iraq's joining the Extractive Industry Transparency Initiative (the EITI, with 23 nations participating, aims to ensure public control over revenues from oil, gas, and mining industries and ensure their effective use, especially concerning sustainable development and poverty reduction).
He defended the Development Fund for Iraq (the UN transferred its authority over expenditures from Iraq's oil revenue to the Coalition Provisional Authority to administer that money through the DFI on behalf of the Iraqi people), first noting that millions of dollars have gone missing and many consider it a case against transparency. He stressed, however, that it was the unique transparent nature of this fund that exposed these shortcomings and will help end that corruption, at least until it expires in 2007. On financial issues, there was agreement that mechanisms should be put in place to guarantee income to both the federal government and the regions.
The discussion during the Q&A ranged from security and corruption issues to questions about privatization and environmental concerns (which had been raised at the Beirut meeting). Said quoted al-Hayat figures claiming $18 billion in oil was stolen or siphoned away in the past two years, totaling, according to the World Bank, 30% of output. Under-invoicing pricing schemes account for a great deal of this theft, but also much is smuggled away in trucks, barges, and tapped pipelines. Some discussants at the OSI-IRW meeting advocated privatizing the industry, but the general consensus backed some level of national coordination and regulation. Said reiterated that 90% of the government's budget emanated from oil revenues and argued privatization would place undue political power in the hands of a few energy companies.
Drafted by Alton Buland, Program on Science, Technology, America, and the Global Economy