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The Hunt Oil Dispute and the Future of Iraqi Federalism

JURIST Guest Columnist Haider Ala Hamoudi of the University of Pittsburgh School of Law says that a dispute over the legality of an oil exploration contract recently made between Hunt Oil Co. and the Kurdistan Regional Government calls into question the growing push for a form of loose federalism for Iraq...

On September 8, it was reported by the Associated Press that Hunt Oil Co. signed an oil exploration deal with the Kurdistan Regional Government ("KRG"), the government of the semi-autonomous region of Iraq controlled by the Kurdish ethnic minority. In the conflict that has since ensued between the Iraqi oil minister and the KRG regarding the legality of the contract is a lesson in the limits of law in nearly stateless societies and the consequent difficulties that would attend any legally sanctioned partition of Iraq. The dispute calls into question the growing call for a form of loose federalism for Iraq, often on the basis of the success of the Kurdish region. It turns out, from the Hunt Oil example, that the matter of separation is not so easy, in the absence of strong, central, national institutions of law that almost presuppose communities working together rather than apart. Let's begin with the constitution, which will frame the legal debate in the Hunt Oil case, which will in turn demonstrate the entire fallacy of the loose federalism position.

The advocates and detractors of loose Iraqi federalism sometimes fail to mention that the current Constitution of Iraq already provides for the possibility of the state envisioned by the loose federalists. Article 110 of the Constitution restricts the exclusive power of the national government to a very limited set of issues dealing with foreign exchange, coinage, national defense, a mail system, citizenship and related matters. Article 114 then mentions broader shared powers between the national government and substate entities known as regions ('aqaleem), and Article 115 makes clear that regional laws have priority over national laws, ultimately meaning that the national government only has effective control over the very narrow list of matters contained in Article 110. The real issue, then, is whether the Shi'i and Sunni populations outside of Baghdad (which is the one province that cannot form an autonomous region under Article 124), currently divided into "provinces" (muhafadhat), will seek to have their own regions as per the Kurdish example, as is contemplated by Article 119. If the provinces were to elect to do this, then a model of loose federalism would be achieved. It would be a rather destructive form of loose federalism, however, one that would extend well beyond what proponents in the United States desire and an almost sure catalyst for future conflict.

The reason for this is, unsurprisingly, oil. Even the loose federalists realize the necessity of sharing natural resources on a national basis, or the resource poor Sunni regions would almost be sure to object to the federal divisions. The latest convert to the loose federalism cause, New York Times columnist Thomas Friedman, therefore refers to Baghdad as the "cash register" that would dispense money to the regions.

Unfortunately for Friedman and his loose federalism allies, however, the constitution, by Kurdish demand, calls for something considerably less than this. Articles 111 and 112 are the compromise drawn between the Kurds and the Shi'a, the primary drafters of Iraq's constitution, on the issue of natural resources. First of all, not all natural resources are covered by Articles 111 and 112, but only oil and gas. Phosphates, which have been described as a potentially profitable by some, lie beyond the purview of these Articles and therefore are under regional control. More importantly, while Article 111 indicates that oil and gas are the property of the entire Iraqi people, Article 112 indicates that management of "existing fields" (al-huqul al-haliya) of oil and gas is under the control of the national government (along with the governments of the regions in question) and that the oil from these fields be shared on a per capita basis, with certain limited exceptions in favor of areas particularly devastated by the actions of the Saddam regime. This presumably leaves new oil fields to be managed as the regions would like. How distribution of revenues might work for new oil fields seems more difficult to determine, given that Article 111 declares oil and gas to be the property of all of the Iraqi people and Article 112 only mentions equitable distribution of oil and gas from existing fields. In any event, some form of consultation with the national government seems necessary, because, among other things, Article 112 also provides that the national government together with the regions and provinces that have national resources are supposed to set oil and gas policy.

Thus, under the Constitution, the KRG seems to have the better legal argument respecting its deal with Hunt Oil, which was signed, it should be noted, after the KRG passed its own oil and gas law. Baghdad appears to have no exclusive sovereignty over the exploration of new fields. Moreover, the question of appropriate revenue distribution under the Constitution is not at issue because the KRG's oil and gas law requires national distribution of any revenues received, and the KRG has pledged to adhere to this in connection with the Hunt Oil deal.

Yet while the oil minister hardly seems to be in a very strong legal position to block the deal, surely the KRG's response to his claims, which are that the minister should tend to his own affairs and deal with the substantial problems inherent in the oil industry outside of Kurdistan, is hardly legally defensible as well. If these resources are truly the property of the Iraqi people, and oil policy is decided in connection with the national government, then surely some form of oversight, monitoring or at least extensive detailed consultation with the national government is necessary. How else is the national government to know what oil is part of the "existing fields", whether the figures respecting barrels sold are accurate, along which pipelines the oil is sent, and so forth. Even the terms of the deal have not been disclosed publicly, information that would be vital to setting oil policy.

To date, the parties have not engaged in meaningful dialogue of any kind on these matters, at least in public. This writing so far as I know is the only one that even begins to touch on the legal issues in any depth. The oil minister and the KRG have made clear their differing views on the legality of the deal, without providing the basis for their positions. And the dispute has not yet involved the Sunni Arabs who are neither in government nor in the Kurdish region in large numbers and who are therefore likely to be even more opposed to the oil deal, let alone any future oil deal signed by a potential Shi'i region. This is hardly an encouraging start to the development of the industry.

One can imagine myriad ways in which disputes of this sort could be resolved. The parties could meet and seek to reach some sort of agreement respecting the level of control Baghdad should have over new oil fields. They could define by legislation what is and is not an existing field. They could organize a program of oil exploration and industry development with input from both national and regional sources to the satisfaction of all parties. Alternatively, they could rely on national courts, or create alternative dispute resolution mechanisms, to address their differences.

The paradox, being, of course, that this requires the very spirit of trust and mutual cooperation whose absence in Iraq is the very appeal of the loose federalist vision. If the trust were to somehow emerge, loose federalism would be irrelevant. In the absence of trust, as the Hunt Oil dispute shows, loose federalism is impossible. In considering the legal difficulties that lie ahead for revenue sharing, as represented in microcosm by the Hunt Oil case, and the odd expectation of loose federalists that these matters can be overcome while Iraq's communities will continue to be at odds with one another, I am reminded of the economist who found himself on a desert island with only a single, unopened can of food. His solution, much like that of the loose federalists, was seductively appealing in its simplicity, elegance and logic. "I'll just assume a can opener," he said.

Haider Ala Hamoudi is a professor at the University of Pittsburgh School of Law. The American-born son of Iraqi parents, he has lived and worked in Iraq and has been a legal advisor to the Iraqi government.

Opinions expressed in JURIST Commentary are the sole responsibility of the author and do not necessarily reflect the views of JURIST's editors, staff, donors or the University of Pittsburgh.

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