Modernizing the Iraq Oil Industry: The Iraq Oil Law and Future Possibilities

Gregory S. Wang

U85-502 Directed Research Project

Graduate Program in International Affairs
Washington University in St. Louis
Summer 2008
 Table of Contents

Introduction 1

Brief History of Iraqi Oil Development 2

Iraq National Oil Company 2

The Iraqi Hydrocarbon Law 4

The Oil Council 5
Regional Authority 6
The INOC and Contracting 7
Revenues 9

Distribution of Oil Revenue 10

Four Models of Allocation 11
Centralized – Public 11
Decentralized – Public 12
Centralized – Private 12
Decentralized – Private 12

Oil Development in Other Nations 14

Production Sharing Agreements (PSAs) 14
Libya
Buyback Model 15
Kuwait 15
Project Kuwait 16
Development and Production Contract 17

Other Considerations in Iraq 17

Conclusions 18

References Cited 20
 Modernizing the Iraqi Oil Industry: The Iraqi Oil Law and the Future of Iraq

Gregory S. Wang

Introduction

Global prices of crude oil reached a new high of over $138 per barrel in the spring
of 2008, an incredible jump from the crude oil prices in 2003 of around $35 per barrel
(Mufson and Irwin 2008; EIA-MonthlyEnergy 2004). The average American driver has
experienced increases in gasoline prices rising from around $1.50 per gallon 5 years ago
to near $4.00 per gallon today (EIA-Historical Prices 2008). This has given pressure to
new debate regarding alternate energy sources and new oil development.

According to the Energy Information Administration, a branch of the U.S.

Department of Energy, the country of Iraq is currently listed as having the third largest
proven reserves of oil in the world with reserves of 115 million barrels and the potential
for even more in undiscovered fields (EIA-Iraq 2007). Similar to many other Middle
Eastern countries, oil is the main export and an integral source of revenue for the Iraqi
economy. Therefore, with the United States greatly involved in the redevelopment of
Iraq and its oil industry, the country is undergoing numerous changes to decades-old oil
policy to get ready to become a major supplier of oil to the energy-hungry world.

The pumping of crude oil is rarely easy, and many potential issues are involved.
Some of the oil-related dilemmas in Iraq on obtaining oil centers on the control of oil and
the handling of potential wealth. This brings issues such as how to separate the control of
oil between the central and the regional governments and how to balance between the
private and the public sector. This control of oil is most important because it will predict
how oil revenue will be distributed and how much ownership and revenue will actually
go to the people of the country.

There is much pressure from the United States and from many policy-makers in
Iraq for the country to quickly come to some consensus on overriding issues that have
delayed new oil production. Pre-war levels of oil production in Iraq were around 2.5
million bbl/d and are currently about 1.5 million bbl/d post-invasion (EIA-Iraq Exports
2007). This indicates there is much potential for development of Iraq’s oil industry,
especially compared with other regional countries like Iran at about 4 million bbl/d and
Saudi Arabia at 7 million bbl/d (EIA-Iran Oil 2007; EIA-Saudi Exports 2007).

The Iraqi Parliament has been debating the Iraqi Oil Law (Hydrocarbon Law)
since 2007. This will be critically important legislation in determining the rules to which
contracting international oil companies must adhere for future oil development. The law

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will define the distribution of wealth among Iraq's three principal groups, the Kurds,
Shiites, and Sunnis, which has been an issue of debate because of the current instability
between these factions. The law also anticipates that foreign oil companies will play a
large role in the development and production of future oil fields in Iraq. This is contested
by opposition that believes international companies will take advantage of the current
weakness of the Iraqi government by establishing exploitative production sharing
agreements (PSAs). The distribution of oil revenues are an important consideration for
Iraq’s oil policy where allocations to the regions and the people will need to be
determined as well as putting money toward the long-term development of Iraq.

In order to evaluate the alternatives available for organizing the new Iraq oil
economy, it is important to first understand the environment and history of the Iraq’s oil
industry. Iraq’s past gives indication of Iraq’s nationalism and how it would be
beneficial to maintain the Iraq National Oil Company in the future. Additionally, the
history of Iraq provides much information about the current state of oil production in Iraq
and how it might benefit from international oil company investment and technology.

Following a brief look at Iraq’s past, a close examination of the last proposed
Iraqi oil law in 2007 will be performed to see the issues that are currently under debate.
After this, the issue of revenue distribution will be looked at as well as structures of the
oil production regulations in other countries. To conclude this paper, the current
happenings in Iraq regarding oil will be observed as well as predictions and suggestions
for the possible oil economy.

The future of Iraq lies with rebuilding the country and developing its economy.
The decision of how and by whom the oil will be developed and how the fruits of this
effort will be distributed to the people will likely determine the new Iraq.

Brief History of Iraqi Oil Development

The production of oil has long been the staple export for the Iraqi economy. The
history of Iraq’s oil development has been difficult due to a number of internal political
conflicts, wars with Iran, and economic sanctions. With estimated proven reserves of 115
billion barrels of oil and possibly over 100 billion barrels undiscovered, Iraq has much
potential for growth in supplying the international demand for energy (EIA-Iraq 2007;
Muttitt 2005, 19). To understand some of the factors influencing the decisions being
made today, an understanding of the past events of Iraq will be beneficial. The path to
the present day oil development began with the push for production under Saddam
Hussein’s regime in the 1970s, the Iran-Iraq War in the 1980s, Iraq’s invasion of Kuwait
followed by economic sanctions in the 1990s, to finally the occupation period of present
day Iraq.

The Iraq Petroleum Company (IPC), formerly known as the Turkish Petroleum
Company has been the main producer of oil in Iraq since 1925. The IPC at its
establishment was a conglomerate of several foreign shareholders. In 1958, Abdul Karim
Qassem, belonging to the Iraqi military, helped lead a military coup to overthrow the

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monarchy of Iraq. On becoming the Prime Minister, Qassem pushed forward
negotiations that would force the involvement of the government in the production of oil.
He would demand the government possess a 20% ownership of the company and have a
seat on the board directing the IPC (Stork 1975). Failing negotiations, Qassem then
issued Public Law 80 which, against much protest and dispute from the oil company,
assumed government control of 99.5% of concession areas from the IPC leaving them
with only the land on which they were currently producing oil.

In 1971, the remaining assets of the IPC in Iraq were nationalized to then create
the Iraq National Oil Company (INOC) which would then control all of the oil production
in Iraq. Kamil Mahdi, Senior Lecturer in Middle East Economics at the University of
Exeter, when commenting on the development of the oil industry while in control by
foreign companies said:

In 50 years of sole control of Iraq’s crude oil production, foreign companies

failed to establish any commercial refining capacity within the country.
Virtually all gas was flared and there was no local downstream oil-based
industry. Reservoir and environmental management was poor and the foreign
consortium refused to share essential technical information with local
policymakers (Mahdi 2007, 12).

Mahdi indicates with the above passage the mismanagement by foreign companies of
Iraq’s oil resources in the past. This would then lead to nationalization that can today be
used for promoting government control of the Iraqi oil industry.

Nationalization of the industry brought increases in production. During Saddam’s

rule of Iraq, he pushed for aggressive oil production from 1976-1980 bringing production
capacity to about 3.7mbd in 1979 with plans for 5.5mbd by 1983 (Khadduri 2004).
Saddam viewed oil as the principal income of his regime and pushed production to
increase government wealth and security. However, in 1980, oil development was
stunted when Iraq attacked its neighbor Iran. During this war, Iran focused bombing
efforts on many economic targets, destroying many oil facilities, and severely putting a
dent in Iraq’s oil development.

Another five-year plan was introduced following the war in 1989 and capacity
was brought up to 3.5mbd, with an optimistic target of 6mbd by 1995 (Khadduri 2004).
Still, Iraq’s greatly weakened economy from the past eight years at war with Iran
prevented any quick growth, and relations were beginning to sour with their neighbors in
Kuwait. The Iraqi government accused Kuwait of enacting a form of economic warfare
by increasing production of oil past OPEC limits during the downturn of prices and of
stealing Iraqi oil from the Rumailah fields. Iraq then decided to take over prosperous
Kuwait claiming that Kuwait was a part of Iraq in August of 1990.

Following the war, Iraq was faced with 13 years of economic sanctions and was
barred from selling its oil on the international markets. A United Nations report in 2000
described Iraq’s oil industry as being in a terrible condition and the industry was known

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for having to improvise their engineering and cannibalize from other plants (Mahdi 2007,
12; Khadduri 2004). Iraq’s oil industry was in a poor state maintaining around 2.8 mbd
before the US war with Iraq. Presently, Iraq is oil production capacity is about 2.4 mbd
and they are striving to rebuild and develop to the previous level and beyond (Lando
2008b). Iraq’s long tenure of government possession of oil resources provides the
background from which the drafters of Iraq’s new oil policies work from and influences
decisions made today.

The Iraqi Hydrocarbon Law

The Iraq Hydrocarbon Law was drafted by a three-person team of experts in the
international oil industry. The drafters of the law were a committee designated in May
2006 by Iraqi Oil Minister Husain al-Shahristani (Khadduri 2007):

• Thamir al-Ghadhban, the former Iraqi Oil Minister and an advisor to Prime
Minister of Iraq Nouri al-Maliki
• Faruq al-Kassim, a Norwegian oil expert with previous experience drafting oil
laws in developing countries
• Tariq Shafiq, one of the founding members of the Iraq National Oil Company
who is now employed by the consulting firm Petrolog & Associates

After drafting the law, it was submitted to the Iraqi Deputy Prime Minister Barham Saleh
that assigned a committee made of federal representatives and Kurdistan Regional
Government officials. This committee then reviewed and revised the document for eight
months when it was then unanimously approved (Khadduri 2007). The draft was sent by
the Iraqi cabinet in February of 2007 and then submitted to the Iraqi Council of
Representatives for approval where it has been in discussion and revision to the current
day (Shafiq 2007b). A main criticism of the drafting process of the law is that it was
written “behind closed doors” with no public discussion of the oil law before it was
released. This gave little opportunity for other industry experts or non-governmental
organizations (NGOs) to review and provide feedback (Al-Shamma 2007; Mahdi 2007,
13).

It is important to note that the basis of the draft oil law is grounded by the 2005
Iraqi Constitution. It is particularly influenced by Articles 110-115 which address the
boundaries and sharing of different areas, the ownership of oil and related resources, and
the structuring between the different parts of the government. These are the areas of most
contention on the draft law, superseded by the Iraqi Constitution (Mahdi 2007, 16).

This draft law is one of a series of four proposed laws that would restructure
Iraq’s oil industry. The draft’s stated purpose is to “establish the regime for the
management of Petroleum Operations in the Republic of Iraq” and to “build upon
existing co-operation between the relevant Ministries in the Federal Government
administration” (Draft Iraq Oil and Gas Law 2007, 5). This draft law would be used to
“resolve the constitutional conflicts arising from the mentioned articles, the practical
operational requirements of the oil industry, and the need to protect Iraq’s oil wealth”

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(Al-Shamma 2007). In doing this, the law mentions the governance of the production of
oil, the type of participation by foreign companies, and how the distribution of oil
revenues will be monitored. The other three laws of the four-law package will address
the establishment of the Iraq National Oil Company and the details of the Ministry of
Oil’s role and organization, and the distribution of oil revenues (Lando 2008a). With oil
being the key economic sector of Iraq, this law will inevitably affect the many political
and ethnic groups in Iraq and the structures of the current governing body of Iraq.

In the development of Iraqi oil policy, the US occupational forces took efforts to
avoid directly making decisions on the changing of the oil sector in order to not be seen
as attempting to control Iraq’s oil. Rather, more subtle measures were used to promote
international oil company participation in Iraq. According to Walid Khadduri, Editor-in-
Chief of the Middle East Economic Survey, the Coalition Provisional Administration
under Paul Bremer did not push forward any policies or changes to the Iraqi oil industry.
Instead, the US took measures to work on improving security while appointing oil
company executives as advisors to assist the Iraqis, such as Phillip Carroll, former
executive officer of Shell Oil USA (Mahdi 2007, 15).

According to the Draft Law’s Preamble, the Iraq Petroleum Law was drafted
under the premise that Iraq needs a central, overruling policy to govern the production of
oil resources among the Iraq National Oil Company (INOC), International Oil Companies
(IOC), and production in different regions as well as to manage the oil revenues obtained
and the distribution between regions that may or may not have oil resources (Draft Iraq
Oil and Gas Law 2007, 4). In analyzing the oil law, major aspects are how the law
addresses the creation of the INOC and the role of the Ministry of Oil (MoO), the
awarding of contracts for production work and the INOC, and the distribution of
resources among the federal government, regional governments, and the Iraqi people.

The Oil Council. The first few Articles (Articles 5-9) call for different councils
that would be the stewards of oil production. Each of these Councils will address a
different level of the process for legislation on oil to then altogether make up the Ministry
of Oil. First, a Council of Representatives to be formed to enact all laws on petroleum
production and to be the main body to approve oil-related treaties related to petroleum
with other countries. Under the Council of Representatives would be the Council of
Ministers that would formulate legislation to be approved by the Representatives but also
would be the ones to control overall production of petroleum products. Then, the
Ministers will be assisted in making their policies by the Federal Oil and Gas Council
made up of a variety of the players representing different aspects of the oil industry. This
makes up the general organization for the ruling body of the oil industry (Draft Iraq Oil
and Gas Law 2007, 9).

Article 7 explains stipulations for how the Ministry of Oil will need to be
organized in order to be capable of performing its new duties in overseeing the proposals
for production and development as well as monitoring and creating legislation. A new
department will be made that will handle the award of contracts and the management of
private contractors (Draft Iraq Oil and Gas Law 2007, 14). The structure of the Ministry

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of Oil and its different councils is designed in an attempt to alleviate the possibility of
corruption through visibility between different arms of the organization (Shafiq 2007a,
4).

The new structure and different level of the proposed Ministry of Oil is
criticized by some for creating a system that will be filled with conflict and will not be
controllable by the central government (Mahdi 2007, 20). Shafiq wrote that the draft law
will organize the Council along Iraq’s different religious and ethnic groups, and create
much division within the organization where a strong unified voice is needed rather most
(Shafiq 2007a, 8). With the writers of the draft law originally envisioning a MoO as the
central voice for the policy and regulation of oil production and revenues, much future
work will be needed in reviewing and defining the structure and its participants.

It is important to note that current negotiations of the draft oil law may have
already changed the original planned structure for the Ministry of Oil and the role for the
Federal Oil and Gas Council. In Shafiq’s latest editorial on the negotiations following
the law’s submittal to parliament, he indicates that many roles of the Ministry of Oil have
been reduced and transferred to the Federal Oil and Gas Council. He says this is a
problem because the Federal Oil and Gas Council is heavily influenced by members of
oil companies who have their own agenda for profits rather than MoO’s goal of the best
benefit for Iraq. With the MoO having less power, this gives more control to the outlying
regions and provinces of Iraq rather than the central control of the Ministry. He asserts
that this may allow international oil companies to be able to sign contracts that will be
“mortgaging the reserves of future generations” (Shafiq 2007b, 8-10).

Regional Authority. Per Article 5.F of the draft oil law, the different regions
will merely have the authority to propose plans for production and development to the
Federal Oil and Gas Council, where each region will be able to send representation on its
behalf. This falls in line with the idea of having strong, central control over all the oil
industry (Draft Iraq Oil and Gas Law 2007, 12-13). This statement of federal control
over fields is also further reinforced by Article 112 of the Iraqi Constitution that says the
regional governments will work in cooperation with and adhere to the decisions of the
federal government (Mahdi 2007, 16).

The law is not very specific on how the federal government and the regional
ones will work together or resolve disputes (Mahdi 2007, 16). The Kurds in northern
Iraq have already begun establishing their own oil production contracts so it is urgent to
address these details. Due to the delay in the Iraqi government coming to resolution on
the oil law, the Kurdish faction has already signed multiple production service
agreements with small oil companies (Porretto and Reid 2007).

CBS news reported on September 9, 2007 that Hunt Oil Co. of Texas signed an
agreement to begin exploration for oil despite the trend from larger companies, like
Exxon, who are hesitant to do so in order not to hurt relations with the central
government (Porretto and Reid 2007). The US government’s allowance of Hunt Oil to
sign contracts with the Kurds conflicts greatly with American policy that is working to

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establish a strong central Iraqi government and the Iraqi Oil Law. Conflicting statements
exist between the State Department, that says they discouraged the contracts, and Hunt
Oil, that says they have documentation showing State Department encouragement or
neutrality on the issue (Glanz and Oppel 2007). This type of controversy brings to light
confusion in American policy and shows evidence of a push for US company
involvement in Iraq oil.

The central government has already qualified 35 companies to be able to bid on

oil service contracts and has held on their threat of blacklisting any of the companies that
had signed with the Kurds from obtaining federal contracts (Lando 2008b). The
occurrence of the Kurds pursuing to establish their own contracts with foreign companies
despite the central Iraqi government reflects the lack of cohesion within the country and
the difficulties in passing a comprehensive oil law. However, recent news indicates a
compromise may have been garnered between the central government and the Kurdish
regional government. Iraqi news-outlets reported on April 15 that an agreement has been
established between Iraq’s central government and the Kurdish regional government
regarding the validity of the Kurd’s previously established oil deals (Lando 2008c). With
an agreement made on Kurdish contracts, the Iraqi government can then progress in
developing their oil policies.

The INOC and Contracting. The Iraq National Oil Company is to be strongly
tied to the government and will be able to produce and sell oil on its behalf. The INOC is
to be legally owned by the Iraqi government yet will be financially and administratively
independent. The INOC will be given flexibility in being able to operate throughout the
country as well as participate in other outside ventures per approval by the Council (Draft
Iraq Oil and Gas Law 2007, 12).

Articles 12 and 15 of the draft law outline the scope of the INOC which allow it
to manage and operate existing fields and also allow the participation in the exploration
of future field development. It is important then to note that the draft oil law has annexes
that include descriptions of oil fields that are either presently producing, discovered, or
exploration areas. These annexes specify which fields are allocated to the INOC and
which will be open to foreign companies; however, the draft law still leaves open the
possibility for the INOC to work in all stages of the production and exploration of oil in
all fields. At the same time, the law also says the INOC must “diligently seek and
develop associations, affiliations, joint ventures and other forms of partnership and or co-
operation in order to promote the rapid growth of an Iraqi private sector” showing a good
faith invitation for foreign participation (Draft Iraq Oil and Gas Law 2007, 21). Article 6
of the draft law covers the creation of the INOC, and here it specifies that for any new
fields, the INOC is to compete with foreign oil companies for an exploration and
production contract (Draft Iraq Oil and Gas Law 2007, 13).

In discussing the involvement of foreign oil companies in the draft law, award
of contracts for oil production are to be under an “Exploration and Production” contract.
These contracts are to be awarded on a competitive basis so that the resources remain
under national control, produce “optimum” economic return to the country, and such

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foreign companies must be pre-qualified by the Ministry of Oil (Draft Iraq Oil and Gas
Law 2007, 14, 17). The article goes on to say that the contracts can be based upon
“service contract, field development and production contract, or risk exploration
contract” or any adaptation of these contracts, so long as they provide the greatest benefit
to Iraq (Draft Iraq Oil and Gas Law 2007, 16).

Critics of the law often reference the articles on contracting in combination with
public statements made by Iraqi officials saying that exploration and production contracts
are the equivalent to production sharing agreements (PSAs) which they believe would
force Iraq into exploitative, long-term contracts (Shafiq 2007b, 3; Mahdi 2007, 14, 19;
Muttitt 2005, 5). PSAs are contracts that allow a foreign company to explore, drill, and
build infrastructure needed for oil production and then pump oil. The oil pumped would
first go to the oil company as “cost oil” for it to recover its expenditures and then
additional oil would be deemed “profit oil” to be divided between the company and the
national government. The length of the contract would be usually long periods of time
(25-40 years) and would be for fixed terms.

An argument is also made that PSAs are appropriate only under limited
conditions: when production costs are very high and do not make up a large percentage of
a nation’s economy or where there is a large degree of risk in finding oil. Because Iraq is
largely dependent on oil exports in its economy and because of the relatively low risk in
finding oil, analysts have been critical of PSA implementation in Iraq (Muttitt 2005, 5,
11-12, 14).

The draft Iraqi Oil Law states that the INOC should extract from in-production
oil wells and gives a preference to foreign companies for new exploration and production.
Because Iraq has only 17 of its 80 known fields in production, which represents about 40
billion of its 115 billion known reserves of oil, this can be argues that the majority of oil
wealth will be given to foreign companies. This means foreign companies will have a
preference for 64% of Iraq’s oil in the assumption that no new oil fields are found, and
there is strong evidence there is much more oil than the current known fields (Muttitt
2005, 19). While the drafters of the law did include the ability for the INOC to
participate in new exploration, this leaves many critics wary that privatization through
foreign companies be producing on new oil fields with contracts that take advantage of
the Iraqi people and without the inclusion of the INOC.

Supporters of the law say that privatization is critical in order to bring needed
technology and expertise to Iraq’s war-torn oil industry (Khadduri 2004). Tariq Shafiq,
one of the drafters of the oil law, has written following the submittal of the draft law to
the Iraqi parliament a change in attitude regarding PSAs. He originally advocated PSAs
with the ability to “buy-back”; however, he now has said that a better method would be
for the use of service contracts with foreign companies instead (Shafiq 2007b, 6). Shafiq
has added that conflicts and vagueness in Iraq’s Constitution governing oil, which takes
precedence over the oil law, create many problems in attempts at writing and passing a
law on petroleum (Shafiq 2007b, 5-7). All these issues are still being hotly debated
between different factions and interest groups in Iraq.

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 Currently, the Iraq Oil Ministry has already seemed to complete the first stage
of awarding oil contracts to foreign investment by releasing the list of 35 companies that
registered and were deemed qualified (Lando 2008b). The next step for award as
outlined in the draft law is the requesting of bids from the companies. This method for
contracting is thus hoped by the drafters of the oil law to be perceived by the public as a
fair and open way of bringing in outside contractors to speed the modernization of the
Iraq oil industry.

Revenues. The distribution of oil revenues is mentioned in Article 11 of the

draft oil law. This article references the Iraqi Constitution on how the Council of
Ministers must submit a federal revenue law to the Council of Representatives who will
then debate, revise, and approve the distribution. However, the article does say that all
oil revenues, which includes royalties, signing bonuses, and production bonuses will be
placed in the “Oil and Revenue Fund” which will then be distributed “fairly” per the
Constitution. Another fund will also be created called “The Future Fund” which will
receive a portion of oil proceeds that will be determined at a later date (Draft Iraq Oil and
Gas Law 2007, 18). The oil law gives very little other detail about the two funds and
their distribution, leaving the real details of revenue distribution to the fourth component
of the oil law package that will govern revenues from oil sales.

Regarding the amount of royalties required to be paid by oil companies that

carry out exploration or production contracts, article 34 of the draft law calls for a royalty
rate of 12.5% of the gross production that can be paid in-kind or in cash (Draft Iraq Oil
and Gas Law 2007, 29). In comparison of this royalty rate to reports from the Federal
Register which is the U.S. government’s official publication on rules and regulations and
in comparison to information from the American Petroleum Industry, the 12.5% royalty
is generally the average rate for on-shore oil production (U.S. Federal Register 2004,
24964; American Petroleum Industry 2006). So the draft oil law’s royalty rate would
seem to be a very non-contentious figure except for the present condition of the price of
oil now exceeding $110 per bbl for crude oil (Bloomberg L.P. 2008). However, royalties
are only a fraction of the equation making up revenue from oil contracts and many other
contract stipulations can influence where money will go and how it will be split.

As the price of oil increases, the royalty rate and oil company profits can
perhaps be viewed as overly-generous. Earnings in 2007 for the top 5 publicly traded oil
companies were over $120 billion. A “windfall” profit tax has been discussed, to benefit
consumer and to support new research into alternative energies (Hargreaves 2008).

Oil companies, of course, oppose new taxes, and conservative think-tanks, such
as the Heritage Foundation, dispute that the government would do better than the free
market in investing in new energy (Hargreaves 2008). In any case, the use of taxes to
control oil company profits and revenues will be a contentious issue due to the strong
influence of the oil lobbies.

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 There are some methods that the Iraqi Government could implement to limit the
profits of foreign oil companies and bring in additional income for domestic use and
development. One method would be a progressive tax rate that would increase in times
of higher oil prices. This type of tax is being implemented in Alaska where the tax rate
will increase by 0.4% per dollar when the Alaskan crude oil price is higher than $52
(Office of Governor Sarah Palin 2007). With the high oil prices, Alaska is currently
discussing new tax rebates to Alaskan citizens with the estimated $7 billion excess in
state revenues (Marois 2008). The progressive royalty system would be helpful in that
oil companies will want to carefully monitor their production volumes and supply in
order to maximize their profits.

Instead of using royalties, Iraq could use an auction system in which companies
would bid on the initial lease of producing oil on lands. The auction system will reveal
the oil industry’s real valuation of each site of production as they submit bids to the
government for rights to produce on a particular section of land. Then the profits are split
between the government and the company on pre-negotiated conditions (Firey 2006).
The auction system or some variant tends to be a more preferred method as indicated by
the preference of the Iraq government through current acceptance of bids for service
contracts for assisting in developing current oil fields. Until the drafting of the fourth
section of the oil law is completed outlining how the regulations for profits and how
revenues will be distributed, speculation can only be based on the published releases to
the media.

Summary of the Draft Oil Law. The draft Iraq Oil Law suggests many
structural changes for the Ministry of Oil and provides some insights on how the future of
oil production will be carried out. Much in the draft law, however, is left very unclear
leaving room for debate and discussion on the actual intentions and the practical
implementation of the articles. From the previously mentioned section on the “INOC and
Contracting”, the Ministry of Oil’s attitude on working with foreign nations gives some
indication of a liberal attitude toward foreign involvement. In the “Oil Council” section
of this paper, it was shown that the draft law states that the Ministry of Oil will oversee
the award and management of exploration and production contracts, but whether these
contracts will be production sharing agreements (PSAs), service contracts, or other
variant, it will not be known until the awards of these contracts have been made or is
explicitly addressed in an approved revision of the oil law.

There is also much leeway in the interaction between the federal and regional
arms of government and how oil revenues will ultimately be distributed. For reasons
such as these, the draft law is still in discussion and yet to be passed by the Iraqi Council
of Representatives.

Distribution of Oil Revenue

In planning the future of the oil industry, an essential question will be how oil
revenues will be distributed in Iraq. How revenues accrued will be allocated to the state,
the regions, and to the people of Iraq sets the framework for control from the most

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influential industry in the country. While considering different methods for revenue
allocation, Iraq will also need to keep in mind to avoid the risks of Dutch disease as well
as falling back into an authoritarian state.

The issue of making maximum use of the derived oil income is important or
Iraq may fall into Dutch disease, defined as the result of “an inflow of oil money
(creating) inflationary pressure, which tends to foster particular patterns of consumption
and investment, and finally affects other industries, eventually weakening the
diversification of the economy” (Kalyuzhnova 2002, 60). The Iraqi example of this
would be an overdependence on their oil economy, neglecting other development.

Countries based on an economy of oil also often fall victim to authoritarianism.

This is because when these countries are able to build revenue from this single source of
income, they no longer must be dependent and responsible to the people of the state,
allowing for the authority to do as they please (Springborg 2007, 33-34). As previous
mentioned in the essay, the draft oil law does specify the creation of an “Oil and Revenue
Fund” for distribution to the federal and regional governments and for a “Future Fund”
for economic development which indicates the drafters are planning for some oversight
of revenue and its allocation.

Robert Springborg of the London Middle East Institute was the lead author of
the book “Oil and Democracy in Iraq” that is one of the first publications on the topic of
the different alternatives for the future Iraq oil industry. The book explores the different
possibilities of the management of revenues in Iraq based on four types of models
(Springborg 2007, 39):

1. Public Centralized
2. Public Decentralized
3. Private Centralized
4. Private Decentralized

These models provide a useful groundwork in looking at different alternatives for Iraq,
and a basis for evaluating the current method Iraq is pursuing.

Centralized - Public. Public centralized allocation of revenues refers to the

distribution of revenues in a Natural Resource Fund (NRF) where the money can be
invested and distributed to promote economic growth and security. The Kuwaiti Fund for
the Future is an example of a NRF where revenue is to be set aside for future
development of other industries as Kuwaiti oil is depleted (Springborg 2007, 40-41, 44).
Distributions could be performed through the use of government loans targeting small
businesses or redistribution of money to alleviate poverty. It is noted that this type of
system is more appropriate when there are rifts in the state’s political system because
money would be safely deposited with the NRF and to restrict the power of the central
government (Springborg 2007, 43). Hence, this may be very useful in that Iraq is
particularly fragmented and politically unstable with its current conflicts. Different
factions within Iraq may also find this system appealing as it puts all revenues in one spot

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for distribution to all the people, including those groups who lack significant oil
resources.

There are some negative effects that might also occur in this structure.
Downsides include the locking of revenues away for future use when it may be more
prudent to use some funds immediately for current issues. The delay in utilizing the
resources while it is in the fund also could perhaps lead to government corruption by the
individuals responsible for maintaining the distributions from the funds (Springborg
2007, 47-48). Springborg (2007, 44) mentions examples of Indonesia, Nigeria, and Chad
as countries where efforts for additional oversight of their oil funds by their parliaments
encountered problems and greatly slowed using the money for development purposes.

Decentralized - Public. Public decentralized allocation is the distribution of

revenues to non-national units of government in different regions. An example of this
would be in locations where Iraq is divided into regions and each region would receive a
certain proportion of oil revenue. An example of this type of system is in Nigeria where
13% of oil revenue goes to the producing region (Springborg 2007, 55). The problem
with this is that it may lead regions to disconnect themselves from the central
government. In Iraq, because the Kurds are continuing to sign oil contracts with at least
20 international oil companies to begin production exacerbates the need for a plan for
allocation that will distribute oil revenues equitably (Agence France-Presse 2007). This
system, however, could very effectively bring additional resources to the needy people of
Iraq by the decentralization of revenue control, though the actual distribution will be
difficult to decide due to unequal possession of oil in regions in Iraq, notably the Sunnis
in the South, who have little or no oil resources.

Centralized - Private. The private centralized model is very different in that it

is not an option that is often entertained by theorists. This model has the government
acting as an investment banker and directing revenues to private organizations that would
then use the funds for industrialization projects (Springborg 2007, 60). An example of
this would the establishment of a bank or organization that would distribute money
throughout the country. The funds would need to be carefully watched to ensure that
they support all ethnic groups and the neediest of people otherwise the government will
face political problems from being seen as favoring certain segments. Accordingly, the
use of nongovernmental agencies to distribute funds could be an option to effectively
diversify government funding in addition to funding private organizations according to
Springborg (2007, 60-61).

Decentralized - Private. This last model is the allocation of oil revenue

directly to the people through payments. This system might have the benefit of the
removal of some control by the government in an effort to increase the influence of
citizens and democracy and would be a direct transfer of aid to the people (Springborg
2007, 69).The most recent example of this type of system is the Alaska Permanent Fund
in Alaska. The Alaskan government collects a portion of oil revenues, and proceeds to
invest the money and deliver annual checks to eligible Alaskan residents. The annual
dividend in 2007 was $1654.00 (Alaska Department of Revenue 2008). The conservative

- 12 -
Heritage Foundation also advocates the creation of this type of fund where research
fellow Ariel Cohen wrote that “such a fund would protect oil revenues from the long
hands of the Iraqi politicians. As in the Alaska model, part of the revenue should be
distributed directly to the bank accounts of every Iraqi” (Cohen 2004).

There are many implications for Iraq if this type of system were to be
implemented. Alaska in 2003 issued $1000 to each citizen from the fund which
represented about 5% of each citizen’s total income; whereas, if that amount were given
to each Iraqi citizen, it would represent about 80% of their total income (Springborg
2007, 65). Sums of money of this magnitude to the Iraqi people may create an
overdependence on government support.

In addition to the problem of finding the correct balance of income to distribute,

other structural and social differences exist in Iraq that would need to be worked out.
One such problem would be how to distribute the money to the people in Iraq due to less
banking participation, how to define eligibility to receive money, possible social conflicts
such as women empowerment by having money in a patriarchal society, and economic
concerns (Springborg 2007, 66). Springborg emphasizes the banking issue in Iraq saying
that direct distributions of revenues “would extensive financial information on
individuals and families, [and] might well be insurmountable [in present Iraq]”
(Springborg 2007, 66). The public decentralized system would require many details to be
addressed, as would any such plan being implemented, but would be revolutionary and
very different from other previous ideas.

When deciding how the revenues will be distributed, Iraq’s system will reflect
one of the four models in some form. From the information provided by the Draft Oil
Law and on the current discussions, Article 11 of the Draft Law indicates a large role for
the central government and the Ministry of Oil in awarding contracts and distributing
government revenues (Draft Iraq Oil and Gas Law 2007, 18). This type of arrangement
is similar to the public centralized version of revenue distribution where Iraq’s oil
revenues will be put into a central fund, “the Oil Revenue Fund”, and another small
portion set aside in a development fund, “The Future Fund” (Springborg 2007, 40-41;
Draft Iraq Oil and Gas Law 2007, 18). The actual proportions for allocation to these
funds and their subsequent distribution is yet to come with the fourth section of the Draft
Law; however, there is the chance that this may not reflect at all how revenues will be
distributed in Iraq without the passage of the Draft Oil Law.

While this section discusses many different models for organizing revenue
distribution, the actual decisions will need to be made according to the actual situation in
Iraq. Springborg believes that Iraqis “are less heterogeneous in regard to oil than their
mix of religions, ethnicities and political commitments might suggest”. Therefore, he
says that Iraqis, in general, would support revenue distributions of a centralized or
decentralized public model that would reserve funds for social welfare or distribute
revenues to the people (Springborg 2007, 98).

- 13 -
 Many Kurds and some Shi’ites favor regional control of ownership and revenue
distribution with the Sunnis favoring a more central control as a result of having less oil
wealth than the others. Springborg (2007, 99) asserts that Iraqis, in general, would
probably support a mix if the decentralized public and private models that have direct
allocations to the people and a type of fund for future economic development. Thus, he
proposes a compromise between the “centralists” and “regionalists” that would have
central government ownership of oil with parts of oil income distributed to all regions (or
provinces/individuals) through a social fund or direct returns to the people (Springborg
2007, 99-100). Oil revenues should not all be allocated immediately so that funds could
later be used for long-term decision-making by the Iraqi government (Springborg 2007,
101).

The Iraqi National Oil Company could also be spun off into smaller regional
companies that could then enter into contracts with international oil companies for oil
exploration and production. Springborg (2007, 100) notes that this should all be done in
a slow incremental process because Iraq still needs to have a strong central government
and a decided policy for oil. In this arrangement of oil ownership and revenue
distribution, he believes the Iraqi government would be able to compromise between the
different interests of Iraqi oil and still retain a balance between using oil for immediate
social needs with the central government’s ability for planning long-term economic
concerns.

Oil Development in Other Nations

To put into perspective the current oil negotiations in Iraq, the next section will
look at some of the contracting models used by other nations. The models to be
considered will be the concession agreements and production sharing agreements used in
Libya, the buyback model used in Iran, and the risk-service contracts used in Kuwait. By
understanding the public reception in these other nations to their chosen contracts, it may
be possible to make assumptions about how they might be implemented or constrained in
Iraq.

Production Sharing Agreements (Libya). It was not until Western nations

began looking outside their own territories did Libya really begin to cultivate their oil
industry. In the late 1940s, geologists determined that there was a high possibility of
Libya possessing large stores of oil and in 1955, Libya passed the Libyan Petroleum Law
(Gurney 1996, 17-28). Since the presence of oil was assumed but not yet confirmed,
Libya wanted to entice foreign companies to the country through concession agreement
contracts that offered attractive financial terms. These terms allowed for low entry costs
for foreign companies, and Libya would only tax the net profits after the companies had
taken portions for their expenses and royalty payments (Gurney 1996, 33-37).

Libya limited the size of concessions given to any one oil company to not let a
particular one gain too much influence in their industry, and had stipulations by which a
percentage of concessions were to be returned to the government each year maintaining
control. These agreements worked well in obtaining foreign participation; however,

- 14 -
within a few years after signing agreements, Libya moved to begin negotiating better
terms for their country and addressing problems of companies that over-produce oil to the
detriment of the oil fields (Gurney 1996, 38-39).

Since 1973 up to the present day, Libya has favored the use of production sharing
agreements (PSAs) known as EPSAs, the former concession agreements. The PSAs were
of the structure in which the national government or the government’s national oil
company would retain ownership of the land and oil to be developed, but the outside oil
companies would effectively operate and provide the resources in the production. In
return for their efforts, the oil companies would receive a percentage, generally 20-40%
of revenues to cover costs and then a negotiated percentage for profits (Gurney 1996, 67-
68). In most cases, these contracts are set for long periods of time lasting up to 25-40
years (Muttitt 2005, 28).

Libya proceeded with a move to the PSA contract type in order to encourage more
foreign participation in the exploration and production of their oil resources because of
the countries need for outside expertise and to share the risks of not finding oil (Gurney
1996, 70). The first round of EPSA was quickly followed with renegotiations with EPSA
II in 1979 due to government concerns of oil depletion of their fields by the foreign
companies, which is a large criticism of PSA’s in general due to the loss of national
control of production (Gurney 2005, 69; Muttitt 2005, 10). Libya’s first two rounds of
EPSA had limited effectiveness in getting the attention of oil companies due to Libya’s
decision to not offer the type of return on revenues to cover costs, but in EPSA III, Libya
switched to the conventional terms of cost recovery and signed agreements with over 25
companies (Gurney 1996, 72).

In 2005, Libya conducted their EPSA IV round for signing PSAs in an open
market competition where the Libyan National Oil Company awarded contracts to
companies that offered them the greatest share of profits (Ali 2005). The production
sharing agreement model seems to have been beneficial for Libya in attracting foreign
participation but may be unsuitable for Iraq due to situational differences. PSAs are often
found “in countries with small oil reserves and/or high extraction costs and/or high
exploration or technical risk” (Muttitt 2005, 10).

While a large amount of risk is involved in being successful in the Libya

landscape, Iraq is different in that companies are relatively assured of having a successful
oil field for development and finding a return on their investment (Muttitt 2005, 10).

Buyback Contracts (Kuwait). Iraq’s neighbor Kuwait has a robust oil economy
producing 2.6 million bbl/d of crude oil which equals the pre-war output levels of Iraq
and holds proven reserves estimated at 101.5 billion barrels (EIA-Kuwait 2006). The
Kuwait oil industry was nationalized in 1977 and remains so today with the Kuwait
Petroleum Corporation (KPC) overseeing all oil operations (Kuwait Information Office
2008). In 1995, Kuwait introduced a long-term plan to increase production to 3 million

- 15 -
bbl/d1 but found that they would need foreign assistance in order to achieve this goal
(Kuwait Project 2008).

The bringing in of foreign companies to a predominantly nationally-controlled oil

industry was recognized and changes were made. Per Kuwait’s “Foreign Direct
Investment Act” of March 2001, restrictions on foreign entities were lessened; however,
the Kuwaiti Constitution strictly forbids allowing foreign entities to own any of Kuwait’s
natural resources. In this situation, one may think that PSAs would be the alternative
solution to obtain foreign aid and yet still retain the national ownership of the land, but
Kuwait instead is opting for an “incentivized buy-back contract2” (EIA-Kuwait 2006).

This buyback proposal for foreign assistance in oil development was named
“Project Kuwait” with the focus of developing Kuwait’s northern fields through foreign
assistance. Project Kuwait held four main tenets (Kuwait Project 2008):

1. Oil industry in Kuwait’s Northern fields to increase oil production from

400,000 to 900,000 barrels daily.
2. The employment, training, and development of Kuwaiti citizens.
3. The transfer of modern technology for the production and development of
difficult oil fields.
4. Minimizing the risk on Capital, to develop certain projects in the Kuwait
Northern fields and to accomplish the most profitable income for the country.

The planned Kuwait Project will allow the “Kuwaiti government to retain full
ownership of oil reserves, control over oil production levels, and strategic management of
the ventures” (EIA-Kuwait 2006). International companies will receive payment through
oil in addition to additional bonuses and incentives for increasing production (EIA-
Kuwait 2006). Project Kuwait was originally planned to begin in 2005 but has been
delayed and is currently being discussed in the Kuwaiti parliament. The main point of
the opposition indicated that original estimates of investment by the Kuwaiti government
for Project Kuwait of $8.5 billion dollars were unrealistic which the current chief
executive of the Kuwait Petroleum Corp Saad Al-Shuwayib has acknowledged. Costs
would be at least double the original. Still, as of 2007, efforts are underway as Kuwait is
accepting bids from foreign companies for Project Kuwait (Reuters 2007).

According to Greg Muttitt (2005, 33) a structure such as Project Kuwait could be
another alternative for Iraq. This is another archetype that would allow the government
to retain control of the oil fields and limit the profits of oil companies, yet still be able to
obtain the foreign assistance needed for development (Muttitt 2005, 33). Iraq could
establish this type of contract for foreign assistance in developing and exploring new
fields and keep the national oil company producing from current fields, in-line with the
proposal in the Iraq Draft Oil Law (Draft Iraq Oil and Gas Law 2007, 21).

1
The EIA reports Kuwait is striving for 4 million bbl/d by 2010 and 5 million bbl/d by 2020 which may be
more updated since Kuwait is already producing at the 2.6 million mark (EIA-Kuwait 2006)
2
Buyback contracts are similar to “Risk Service Contracts” where foreign companies provide capital and
technical expertise in return for a portion of the oil sales or actual compensation in oil (Muttitt 2005, 25)

- 16 -
 Development and Production Contract (1990s Iraq). Another method for the
new government for Iraq to explore when considering the types of contracts that will be
signed with foreign companies is the development and production contract. This type of
contract was used in the 1990s by Saddam Hussein. Foreign companies would develop
and produce an oil field for a fixed period of time, around 12 years, after which they
would then turn over control to the national government. Following the return of the
field, the foreign company may continue on through a technical service agreement by
which they would provide assistance to the national oil company as needed in return for a
privilege to buy oil at market or a discounted price (Muttitt 2005, 33). This type of
contract, like others proposed, allows for national control of the oil fields and limits the
profits of foreign companies with the benefit of still obtaining foreign assistance in
development.

There are several examples of contract types in use that Iraq might implement to
fulfill the requirement of national government ownership of the fields, yet also the need
for foreign oil company investment and expertise. Iraqi policymakers will need to review
the different options available, and compare Iraq’s situation with that of other nations to
assist in making the optimal decision.

Other Considerations in Iraq

In addition to deciding the contract type to be used and the actual distribution of
revenues, other issues in Iraq will need to be resolved. Some of these include how
control will be split between the central government and the regions and how the
regulation of oil will be administered, the instability of government within Iraq, and
managing US interests for Iraqi oil with the best for Iraq.

The conflict between the central government and the Kurdish region may be
making some progress towards resolution. There are reports that Iraqi officials have
come to an agreement with the Kurdish region in resolving the dispute stemming from
the Kurds moving to sign their own oil development contracts and their own oil law
despite the lack of a central Iraqi oil law (Lando 2008c). With the Kurds having already
their own oil law, it is yet to be determined how regulations by the central government
might affect them or if they will have their own autonomy in this matter.

The Kurdish oil law actually has many similarities to the Draft Oil Law for the
Iraqi government submitted in February 2007. The Kurd Natural Resources Minister
Ashti Hawrami said that the Draft Law for the federal government “is in line with our
law” (Lando 2007). The Kurd Oil Law indicates that all revenues from the oil production
will go to the central government where after expenses and other distributions are taken
out, 17% of net revenue will be returned to the Kurdistan Regional Government for their
own allocation (Kurdistan Regional Government 2007). While some of the numbers may
need to be negotiated and analyzed for suitability and reasonableness, the law may be
able to fit with the stipulations of the Draft Iraq Oil Law, yet the actual arrangements and
future for the current Kurd contracts and the involvement of the central government is yet
to be discovered.

- 17 -
 A secure environment and stable government should exist to develop and enforce
Iraq oil policy. The instability of Iraq and the inconsistency of opinions for the Iraq oil
industry have given cause to cautiously decide the future for Iraq oil. In a speech by the
Prime Minister of the Iraq Interim Government, Dr Al’lawi in June 2004, he spoke of a
plan to limit the role of the Iraqi National Oil Company to existing fields with all new
fields going to foreign companies in the form of production sharing agreements (Shafiq
2007b, 3). However, the Draft Law states that it would be best for the Iraqi National Oil
Company’s participation in the development for new fields and that there are alternative
contract types provide for this arrangement (Draft Iraq Oil and Gas Law 2007, 21).
Many oil experts, including Tariq Shafiq, one of the drafters of the Draft Oil Law have
expressed the importance of a strong central government working with the regional
governments with the acceptance of foreign oil companies through service contracts
rather than PSAs (Shafiq 2007b, 6; Walt 2007, 3). Iraq’s central government will need to
come to consensus on these policy decisions.

The stability of Iraq is reportedly making slow but steady progress. The latest
report on stability and progress in Iraq, per the Department of Defense, indicates
increasing progress in security with limited progress politically and economically ((U.S.
(U.S. DoD)) 2008, iii). Improving and increasing oil development will require a stable
and secure environment to repair the infrastructure in Iraq and attract international
company participation.

Given the current demand for oil today, there is pressure for Iraq to quickly
develop their oil industry and to increase production. The Iraqi government has already
moved forward on developing their future oil economy by calling for bids from
international oil companies. Other indicators show that changes in the Iraqi oil economy
are forthcoming, such as the agreement being made with the Kurdish region and the U.S.
government’s report of increasing stability in Iraq. The Iraqi government currently is
readying to sign deals with some of the approved international oil companies for two-
year service contracts to aid in managing and supplying needed infrastructure in the
currently in-production field of Rumaila (Webb and Rasheed 2008). These contracts are
planned to be a temporary alternative to increase oil production capabilities until an oil
law can be passed for future progress.

These service contracts are being awarded on a no-bid basis to Western oil
companies over Russian, Chinese, or other competitors. This means these were not
performed under a competition and will be perceived by the Iraqi people and other
nations as the occupying forces in Iraq taking advantage of their position to the loss of the
best deal for the Iraqi people (Mottern 2008). The United States should actively work to
ensure American companies have a fair chance to compete for work in the Iraqi oil
industry but should focusing on building an environment for fair and open competition
for the oil industry. Appearances of impropriety will hurt international standing and lose
the trust of the Iraqi people, who the military is fervently working to win over.

Conclusions

- 18 -
 With Iraq using short-term two-year service contracts in lieu of having a firm oil
law, they will be able to improve the productivity of their current fields and leave the
decisions for future fields for another day. This move will allow the Iraqi government
and Western powers additional time to work on the security climate of Iraq and continue
efforts to pass a comprehensive oil law.

From researching the draft oil law and the recommendations from experts and
writers of the subject, several recurring points stand out as being important for the future
Iraqi oil industry, and many of these issues can be addressed through the establishment of
an Iraqi oil law. Therefore, the law is a very important piece of Iraq’s future oil economy
because its effect will be felt throughout the industry. This oil law should work to ensure
the following:

1. Central ownership of petroleum resources rather than regional ownership

With the main Iraqi government as the center point of distribution of oil revenues,
this will give greater authority to adhering to the laws governing oil production as well as
allow for less biased distribution of resources to the regions. While there is central
ownership of resources, compromises could also be made that allow for regions to
themselves determine the specific distributions of their allocated revenues to more
efficiently use money where needed. In this situation, the benefits of both a strong
central control to govern oil production and revenues and the different situations of
regions can be addressed.

2. A revenue distribution method that acknowledges concerns for long-term

development

The immediate development needs of Iraq should be addressed through a portion

of oil revenues but the long-term development of Iraq should not be forgotten. The use
of a system, such as a Natural Resource Fund, can be used for other business
development outside the petroleum industry to ensure the future prosperity of Iraq. This
money can also be partially used to address poverty concerns and job development goals
in Iraq’s economic growth.

3. Continues use of the Iraq National Oil Company in oil exploration and production

The interests of the INOC are, by default, of the national government’s as they are
nationally owned and operated. They can be kept competitive through regular
competition with international companies and should be permitted to participate in
current and future oil exploration and production. The use of the INOC is in concurrence
with the current nationalistic attitudes present in Iraq but if this changes at a future point
in time, then more privatization of the industry could be allowed, if appropriate.

4. The use of international oil companies to the benefit of Iraqi interests, ideally
through contracts that have short periods of performance

- 19 -
 Most analysts agree that international oil company assistance in development and
production would be of benefit to Iraq’s aging equipment and lagging behind in the most
recent technological advances. However, Western nations should not be allowed to setup
exploitative contracts with Iraq that would drain the wealth of the nation. Until Iraq
develops a firm oil law and has stronger political stability and overall security, short-term
contracts can be arranged to begin renovating the aging production facilities in Iraq while
holding off on new development for a more ideal time. Contrary to current events of no-
bid contracts being awarded to international companies for this effort, proposals should
all be fairly competed to ensure Iraq obtains the best deal.

The oil law needs to directly address the contracting rules with international oil
companies and could address types of contracts that could be used, such as buy-back
contracts and service contracts that would be able to acquire the foreign company
assistance yet leave control to Iraq.

The United States and other Western nations involved in Iraq’s future should take
great care in assisting the Iraqi people in development and avoid meddling in their affairs
for self-interest. If Iraq can successfully establish their oil industry with the strategies
offered, they should be better positioned for future growth and prosperity. A centrally
controlled economy that makes the best use of international oil companies while
allocating oil revenues to Iraq’s future growth is probably an ideal resolution for the
structure of Iraq’s oil economy. The legacy of Iraq’s oil development is likely to have a
long-lasting impact on the new Iraq, other nations pursuing oil, the stabilization of the
Middle East, and most important, the Iraqi people.

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