Order Code RL34064
Iraq: Oil and Gas Legislation,
Revenue Sharing, and U.S. Policy
June 26, 2007
Christopher M. Blanchard
Analyst in Middle Eastern Affairs
Foreign Affairs, Defense, and Trade Division

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Iraq: Oil and Gas Legislation, Revenue Sharing, and
U.S. Policy
Summary
Iraqi leaders continue to debate a package of hydrocarbon sector and revenue
sharing legislation that will define the terms for the future management and
development of the country’s significant oil and natural gas resources. The package
includes an oil and gas sector framework law and three supporting laws that would
outline revenue sharing mechanisms, restructure Iraq’s Ministry of Oil, and create an
Iraqi National Oil Company. Both the Bush Administration and Congress consider
the passage of oil and gas sector framework and revenue sharing legislation as
important benchmarks that will indicate the current Iraqi government’s commitment
to promoting political reconciliation and long term economic development in Iraq.
Section 1314 of the FY2007 Supplemental Appropriations Act [P.L.110-28]
specifically identifies the enactment and implementation of legislation “to ensure the
equitable distribution of hydrocarbon resources of the people of Iraq without regard
to the sect or ethnicity of recipients” and “to ensure that the energy resources of Iraq
benefit Sunni Arabs, Shia Arabs, Kurds, and other Iraqi citizens in an equitable
manner” as benchmarks on which the President must report to Congress in July and
September 2007. The draft framework legislation approved by Iraq’s Council of
Ministers (cabinet) in February 2007 does not include revenue sharing arrangements.
The companion revenue sharing law defines terms for revenue distribution. The
Council of Representatives (parliament) has not yet considered either bill. The
central importance of oil and gas revenue for the Iraqi economy is widely recognized
by Iraqis, and most groups accept the need to create new legal and policy guidelines
for the development of the country’s oil and natural gas. However, Iraqi critics and
supporters of the proposed legislation differ strongly on a number of key issues,
including the proper role and powers of federal and regional authorities in regulating
oil and gas development; the terms and extent of potential foreign participation in the
oil and gas sectors; and proposed formulas and mechanisms for equitably sharing oil
and gas revenue. Concurrent, related discussions about proposed amendments to
articles of Iraq’s constitution that outline federal and regional oil and gas rights also
are highly contentious.
The current military strategy employed by U.S. forces in Iraq seeks to create a
secure environment in which Iraqis can resolve core political differences. However,
it remains to be seen whether the package of hydrocarbon legislation under
consideration will promote reconciliation or contribute to deeper political tension.
Administration policymakers and Members of Congress thus face difficult choices
with regard to encouraging timely consideration of hydrocarbon legislation and
related constitutional reforms while attempting to ensure that the content of proposed
laws and amendments reflects compromises reached by and acceptable to Iraqis.
This report reviews the package of legislation currently under consideration, analyzes
the positions of various Iraqi political actors, and discusses potential implications for
U.S. foreign policy goals in Iraq. The report will be updated to reflect current debates
and new developments. See also CRS Report RL31339, Iraq: Post-Saddam
Governance and Security, and CRS Report RS22079, The Kurds in Post-Saddam
Iraq.

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Contents
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Draft Hydrocarbon Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Draft Hydrocarbon Framework Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Federal Oil and Gas Council . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Contract Type(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Petroleum Revenues and Sharing Arrangements . . . . . . . . . . . . . . . . . . 5
Regional Authority and Oil Field Management Annexes . . . . . . . . . . . 5
Draft Revenue Sharing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Prospects for Future Revenue Sharing . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Ministry of Oil and Iraq National Oil Company Laws . . . . . . . . . . . . . . . . . 7
Prospects for Enactment and Implementation . . . . . . . . . . . . . . . . . . . . . . . . 7
Iraqi Perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Core Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Iraq’s Constitution: Federal and Regional Authority . . . . . . . . . . . . . . . 8
Revenue Sharing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Foreign Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Players and Positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
The Kurds: Regional Authority and Kirkuk . . . . . . . . . . . . . . . . . . . . 11
Sunni Arabs: Revenue Sharing and Foreign Participation . . . . . . . . . . 11
The United Iraqi Alliance: Investment and Development . . . . . . . . . . 12
Basrah: Industry Unions and the Fadilah Party . . . . . . . . . . . . . . . . . . 12
International Energy Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Oil Revenue and Security Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Current Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Resources, Expenditures, and Corruption . . . . . . . . . . . . . . . . . . . . . . 14
Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Infrastructure Attacks and Smuggling . . . . . . . . . . . . . . . . . . . . . . . . . 15
U.S. Policy and Issues for Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Frequently Asked Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Privatization and Foreign Participation . . . . . . . . . . . . . . . . . . . . . . . . 17
U.S. Legal and Diplomatic Support . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Congressional Benchmarks and Other Legislation . . . . . . . . . . . . . . . . . . . 18
List of Figures
Figure 1. Location of Iraq’s Oil Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
List of Tables
Table 1. Key Oil Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

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Iraq: Oil and Gas Legislation, Revenue
Sharing, and U.S. Policy
Background
Oil exploration and production in Iraq began in the 1920s under the terms of a
wide-ranging concession granted to a consortium of international oil companies
known as the Turkish Petroleum Company and later as the Iraq Petroleum Company.
The nationalization of Iraq’s oil resources and production was complete by 1975.
From 1975 to 2003, Iraq’s oil production and export operations were entirely state
operated. However, from the early 1980s until the toppling of Hussein’s government
in 2003, the country’s hydrocarbon infrastructure suffered from the negative effects
of war, international sanctions, a lack of investment and technology, and, in some
cases, mismanagement.
According to the Oil and Gas Journal, Iraq has 115 billion barrels of proven oil
reserves, the world’s third-largest. Other estimates of Iraq’s potential oil reserves
vary. In April 2007, oil industry consultants IHS estimated that Iraq’s proven and
probable reserves equal 116 billion barrels, with a potential additional 100 billion
barrels in largely unexplored western areas. The U.S. Geological Survey’s median
estimate for additional oil reserves in Iraq is approximately 45 billion barrels. In
August 2004, Iraq’s then-Oil Minister Thamer al Ghadban stated that Iraq had
“unconfirmed or potential reserves” of 214 billion barrels. Iraq’s proven reserves are
concentrated largely (65 percent or more) in southern Iraq, particularly in the
southernmost governorate of Al Basrah. Significant proven oil resources also are
located in the northern governorate of Al Tamim near the disputed city of Kirkuk.
(See Figure 1, below). Oil exports provide over 90% of Iraq’s government revenue.
Draft Hydrocarbon Legislation
Iraqis continue to debate a package of hydrocarbon sector and revenue sharing
legislation that will define the terms for the future management and development of
the country’s significant oil and natural gas resources. The centerpiece of the
legislative package is a draft hydrocarbon framework law that would create a
regulatory and policy development framework for future oil and gas exploration and
production in Iraq. Three companion laws will complete the package by establishing
terms and mechanisms for revenue sharing, creating the Iraq National Oil Company,
and reorganizing Iraq’s Ministry of Oil. Concurrent negotiations regarding
constitutional amendments may have direct implications for the package of
hydrocarbon legislation, particularly efforts to clarify the specific authorities granted
to federal and regional governments to regulate oil and gas development and export
activities under Articles 111 and 112 of the Iraqi constitution.

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CRS-2
Figure 1. Location of Iraq’s Oil Reserves and Infrastructure
Source: U.S. Energy Information Administration (EIA), Energy Situation Analysis Report, June 26,
2003. See also EIA, Country Analysis Brief: Iraq, June 2006; and CRS Report RS21626 - Iraq Oil:
Reserves, Production, and Potential Revenues.
Table 1. Key Oil Indicators
Oil
Oil
Oil Production
Oil
Oil
Exports
Oil
Oil
Revenue
(current weekly
Production
Exports
(pre-
Revenue
Revenue
(2007 to
avg.)
(pre-war)
(current)
war)
(2005)
(2006)
date)
1.85 million
$23.5
$31.3
$13.9
barrels per day
2.5 mbd
1.38 mbd
2.2 mbd
billion
billion
billion
(mbd)
Note: Figures in the table from the U.S. Department of State “Iraq Weekly Status Report,” June 20,
2007. Oil export revenue is net of a 5% deduction for reparations to the victims of the 1990 Iraqi
invasion and occupation of Kuwait, as provided for in U.N. Security Council Resolution 1483.

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CRS-3
Both the Bush Administration and Congress consider the passage of oil and gas
sector management and revenue sharing legislation as important benchmarks that will
indicate the current Iraqi government’s commitment to promoting political
reconciliation and economic development in Iraq. Iraqi critics and supporters of the
legislative package differ over the proper roles and authorities of federal and regional
bodies, the terms and extent of potential foreign participation in oil and gas
production and development, and potential formulas and mechanisms for equitably
sharing oil and gas revenue. The four elements of the package of hydrocarbon
legislation remain at different stages of development and negotiation and are likely
to be considered by the Council of Representatives (parliament) simultaneously.

Iraqi, U.S., and other international observers have expressed concern that the
atmosphere of violence and unresolved political tension prevailing in Iraq may not
be conducive to careful consideration of detailed hydrocarbon sector legislation.
Specifically, Iraqi labor groups have challenged the transparency and inclusiveness
of the drafting and negotiation processes thus far, and some blocs within Iraq’s
Council of Representatives have vowed to oppose or attempt to significantly amend
elements of the legislative package to reflect their priorities (see Players and
Positions below).
Draft Hydrocarbon Framework Law
Beginning in mid-2006, a three member Oil and Energy Committee working
under the auspices of the Iraqi cabinet prepared draft hydrocarbon framework
legislation to regulate Iraq’s oil and gas sector. A political negotiating committee
subsequently edited their draft. Following approval by the negotiating committee,
Iraq’s Council of Ministers (cabinet) approved the draft hydrocarbon framework
legislation in February 2007.1 Annexes to the law that designate specific oil fields
for management by federal and regional authorities remain controversial (see below).
Federal Oil and Gas Council. The central element of the draft hydrocarbon
framework legislation is the creation of a Federal Oil and Gas Council (FOGC) to
determine all national oil and gas sector policies and plans, including those governing
exploration, development, and transportation. The FOGC would become the most
powerful body in Iraq’s oil sector, with the power to review all contracts, and would
operate according to a two-thirds majority decision-making system. The seats on the
FOGC are reserved for specific cabinet members, representatives of constitutionally
recognized regional governments, hydrocarbon experts, and “producing
governorates.”2 A “Panel of Independent Experts,” open to Iraqi and foreign
membership, would work with the FOGC in a non-binding, advisory capacity. The
1 In response to a June 2007 CRS inquiry, the U.S. Department of State referred to an
English text of the draft legislation made available by the Kurdistan Regional Government
as an official English draft version. It is available online at
[ h t t p : / / w w w . k r g . o r g / u p l o a d s / d o c u m e n t s / D r a f t % 2 0 I r a q % 2 0 O i l % 2 0 a n d
%20Gas%20Law%20English__2007_03_10_h23m31s47.pdf]
2 Article four of the draft framework law defines a “producing governorate” as “any Iraqi
Governorate that produces Crude Oil and natural gas continually on rates more than one
hundred and fifty thousand (150,000) barrels a day.”

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CRS-4
possibility that foreign energy experts or industry representatives could be chosen to
participate on this panel has alarmed some Iraqis and foreign observers.
Although the draft law stipulates that the formation of the FOGC “shall take into
consideration a fair representation of the basic components of the Iraqi society,”
some observers have warned that the makeup of the FOGC specified in the draft law
could potentially contribute to sectarian or regional tensions. Given the potential for
the majority Shiite Arab community to directly or indirectly control the makeup of
Iraq’s cabinet in Iraq’s democratic system and the ineligibility of Sunni Arab
governorates to qualify for FOGC seats based on the other specified terms, some
Sunni Arabs fear their interests may not be adequately represented in the powerful
council. Other Iraqis may be encouraged to seek constitutionally recognized regional
status in order to ensure their representation in the council.
Contract Type(s). The draft hydrocarbon framework law establishes several
criteria that future “exploration and production contracts” must meet. The criteria are
designed to preserve Iraqi control and maximize the country’s economic return. The
draft law does not mandate the use of so-called “production-sharing agreements” as
the sole model contract for future oil development in Iraq. The law states that
contract holders may be given exclusive rights to exploration, development,
production, and marketing of Iraqi oil for specified periods, subject to approval of the
contract and a field development plan by Iraqi authorities. The law also outlines
general terms and conditions for evaluating contracts and development plans
designed to preserve the Iraqi government’s sovereign control of oil production,
economic returns to Iraq, and “appropriate returns” to potential investors.3 The
FOGC’s Panel of Independent Experts would use these criteria to evaluate contracts
signed by the Kurdistan Regional Government since 2003, and the Ministry of Oil,
and the FOGC would use the criteria to evaluate contracts signed by the former
regime with international oil companies (Article 40).
The contract provisions of the law have attracted significant attention because
they would allow foreign participation and therefore represent, in principle, a reversal
of the nationalization of Iraq’s oil sector. The specific details of model contracts
developed by Iraqis and the terms of specific individual contracts negotiated between
Iraq and potential foreign partners will determine the type of foreign participation and
the specific long term revenue benefits to Iraq or foreign companies. The draft
hydrocarbon framework law does not mandate a specific form of contract or
predetermine specific contract terms or details.4 The FOGC would develop model
3 According to Article 9 of the draft framework, “All model contracts shall be formulated
to honor the following objectives and criteria: 1- National control; 2- Ownership of the
resources; 3- Optimum economic return to the country; 4- An appropriate return on
investment to the investor; and 5- Reasonable incentives to the investor for ensuring
solutions which are optimal to the country in the long-term related to a- improved and
enhanced recovery, b- technology transfer, c- training and development of Iraqi personnel,
d- optimal utilization of the infrastructure, and e- environmentally friendly solutions and
plans.”
4 The law explicitly states in Article 9 that “Model Contracts may be based upon Service
(continued...)

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CRS-5
contracts for use in Iraqi oil and gas fields and evaluate agreements with foreign
participants according to the stated criteria and the model contracts. According to
Revenue Watch5 Middle East director Yahia Said, “the aim of this law from
beginning was to promote foreign investment in Iraq’s oil sector. Yet while the law
opens the door for foreign companies, there are careful, deliberate mechanisms in
place to maintain control in the hands of national government.”6
Petroleum Revenues and Sharing Arrangements. The draft
hydrocarbon framework law states that Iraq’s oil wealth belongs to all of its citizens,
as reflected in the Iraqi constitution. However, the draft legislation does not contain
specific guidelines or mechanisms for revenue sharing. The draft would create two
funds for oil revenues: the first, an “Oil Revenue Fund,” and the second, a “Future
Fund” to hold an unspecified percentage of oil revenue for long-term development
goals. Both funds would be regulated and administered according to terms specified
in separate federal revenue legislation (see below).
Regional Authority and Oil Field Management Annexes.
Constitutionally recognized regional authorities would automatically qualify for seats
on the FOGC under the terms of the draft oil sector legislation. The draft law would
grant regional authorities licensing powers with regard to oil fields specified in the
law’s annexes, subject to the terms of the draft law and in conjunction with the plans
and procedures of the FOGC. Official versions of the draft annexes have not been
published, although several press reports cite figures and details drawn from drafts
circulated at an April 2007 Iraqi oil conference in Dubai.7 According to these
reports, approximately 93 percent of Iraq’s proven oil reserves would be subject to
the jurisdiction of the federal government (Annexes 1, 2, and 4), while the Kurdistan
Regional Government (KRG) would exercise authority over the remaining seven
percent (Annex 3).8 In response, Kurdish representatives made several public
statements following the conference expressing their opposition to the draft annexes
and threatening to withdraw support for the legislative package in the Council of
Representatives.9 The KRG has posted its analysis of the annexes on its website.10
4 (...continued)
Contract, Field Development and Production Contract, or Risk Exploration Contract.”
5 Revenue Watch is an independent operating and grantmaking 501(c) 3 organization that
monitors natural resource revenues and public expenditures and provides grants to local
partners to improve transparency in oil and gas producing countries. For more information,
see [http://www.revenuewatch.org/].
6 Said, Remarks at the United States Institute of Peace, May 18, 2007, as quoted in Christina
Parajon, “USIPeace Briefing: The Iraq Hydrocarbon Law: How and When?,” June 2007.
7 An unofficial transcript of the Dubai meeting is available at [http://www.revenuewatch.org
/activities/April18IRW/April%2018%20transcript.pdf].
8 According to press reports, Annex 1 lists 26 fields currently in production, Annex 2 lists
25 fields that are “close to production,” Annex 3 lists 27 fields not near production and open
to international oil companies or the INOC, and Annex 4 delineates 65 exploration blocks.
9 For example, Ashti Hawrami, Minister of Natural Resources for the Kurdistan Regional
Government said, “The annexes as they are written now will not be accepted by the KRG....
(continued...)

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CRS-6
Draft Revenue Sharing Law
Article 112 of the Iraqi constitution sets qualitative criteria for the distribution
of oil and gas revenues and requires the Iraqi parliament to pass a law regulating
revenue distribution. In February 2007, some officials in Baghdad and Washington
indicated that a broad agreement to share oil revenues among regions based on
population had been reached. However, Iraqi leaders continued to negotiate the terms
of the draft revenue sharing law through June 2007. In line with the constitutional
requirement, a separate draft revenue sharing law has been prepared as a component
of the hydrocarbon legislative package currently under consideration.
According to a draft of the revenue sharing law published by the Kurdistan
Regional Government on June 20, 2007,11 the federal government would be
empowered to collect all oil and gas revenue, with the stipulation that all funds be
deposited into external and internal accounts based on their source. The federal
government would have priority to allocate the funds in the accounts to support
national priorities such as defense and foreign affairs, “provided that this does not
impact the balance and needs of the governments of the Regions and the
Governorates which are not organized in a region.” The remainder of the accounts
would be distributed to regions and governorates automatically, on a monthly basis,
based on agreed population-density-based percentages until a census can be
completed. The Kurdistan Regional Government would receive a 17% share of the
remaining funds deposited in two accounts at the Central Bank of Iraq branch in
Irbil.12 No specific provision is made in the draft for addressing requirements to meet
the needs of “damaged regions” as required by Article 112 of the constitution.
The draft revenue law also would create a “Commission of Monitoring the
Federal Financial Resources” composed of central government officials, experts, and
representatives of each region and governorate. The Commission would monitor
deposits and allocations from the central revenue fund, in addition to facilitating
international audits and producing monthly, quarterly, and annual transparency
reports. Article 7 of the draft revenue law reiterates the call for the establishment of
a “Future Fund” for surplus revenue, but states that the operation of such a fund
should be defined in a separate piece of legislation following further negotiation
among federal, regional, and governorate representatives.
Prospects for Future Revenue Sharing. A number of outside observers
have emphasized the importance of proper oil revenue management and equitable oil
9 (...continued)
If I don’t get the lion’s share of fields (in the region) then it’s a bad law. If the law dilutes
regional control then it is unconstitutional.” Simon Webb, “Iraq Oil Law to Go to
Parliament, Kurds Wary,” Reuters, April 18, 2007.
10 Available at [http://www.krg.org/pdf/Dubai_Oil_Law_Annexes_with_KRG_analysis.pdf]
11 Available at [http://www.krg.org/pdf/English_Draft_Revenue_Sharing_law.pdf]
12 Ben Lando, “Iraqis Make Progress on Sharing Oil Sales,” United Press International
(UPI), June 21, 2007.

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CRS-7
revenue sharing as requirements for economic development and political
reconciliation in post-Saddam Iraq. Some Members of Congress, such as Senator
Hillary Rodham Clinton and Senator John Ensign, have advocated for the creation
of an “Iraq Oil Trust” to ensure that all Iraqis share Iraq’s oil wealth equitably.13 The
Iraq Study Group recommended that oil revenue accrue to the central government
and not to regions (Recommendation 28). This principle appears to have been
included in the draft hydrocarbon framework and draft revenue sharing legislation,
which would create central accounts for oil and gas revenues.
According to the drafts, revenue sharing will reflect a population-based system
for revenue allocation, with automatic monthly distributions to regional and
governorate authorities. Potential obstacles to revenue sharing on these terms include
the lack of recent, reliable national census data and uncertainty over the terms of
communal representation on hydrocarbon policy decision making and
implementation bodies. Political groupings that favor strong central government
control over production and revenue decision making have criticized the draft, and
one Iraqi politician reportedly referred to the arrangements agreed to in the draft
revenue sharing law as the result of “political blackmail” by Kurdish politicians.14
Ministry of Oil and Iraq National Oil Company Laws
The final two components of the hydrocarbon legislative package are laws that
will reorganize Iraq’s Ministry of Oil and establish an Iraqi National Oil Company
(INOC). Under the hydrocarbon framework law, the responsibilities and authorities
of the Ministry of Oil and the INOC would be altered significantly, and the draft
Ministry and INOC laws are necessary to ensure proper oversight, accountability, and
separation of powers between the two entities. As of June 26, 2007, drafts of these
laws had not been published and public reporting on their contents remains limited.
Prospects for Enactment and Implementation
Iraqi and U.S. officials hailed the Council of Ministers’ February 2007 approval
of the draft hydrocarbon framework legislation as an important step forward.
However, in recent months, the draft legislative package has been the subject of
intense scrutiny from Iraqi and international observers: the draft framework law is
imprecise on key issues, including contract terms and revenue sharing, and political
observers have warned the legislation would create decision making structures that
could contribute to sectarian or inter-regional tensions rather than defuse them.
Both the U.S. and Iraqi administrations had hoped the hydrocarbon framework
law would be approved by the parliament by the end of May 2007. However,
differences over the oil field management annexes to the hydrocarbon framework and
the revenue sharing formulas and mechanisms precluded parliamentary
13 Senators Hillary Rodham Clinton and John Ensign, “An Oil Trust for Iraq,” Wall Street
Journal, December 18, 2006.
14 Remarks attributed in an Iraqi press account to Usama al Najafi, a member of the Iraqiya
parliamentary coalition associated with former interim prime minister Iyad Allawi.

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CRS-8
consideration. The failure to achieve a regular quorum in the Iraqi Council of
Representatives also has complicated efforts to consider or adopt legislation since
late 2006. Many Iraqi legislators maintain residence outside of Iraq, and, as of late
June 2007, two Sunni parliamentary blocs — the National Dialogue Front and the
Accord Front, were boycotting parliamentary sessions. Within the parliament,
criticism of a perceived fast-tracking of hydrocarbon legislation because of U.S.
demands is prevalent. Once the parliament begins consideration of the package,
potential amendments to the draft legislation could alter or jeopardize core
compromises reached by negotiators and cabinet officials. The Iraqi government may
face long-term challenges in enforcing enacted legislation in light of persistent
security threats and the strong opposition to proposed compromises voiced by some
Iraqi groups (see Players and Positions below).
Iraqi Perspectives
Core Issues
Iraq’s Constitution: Federal and Regional Authority. The concept of
federalism has been incorporated into Iraq’s constitution and law, and Iraqi attitudes
toward the draft legislative package often correspond with regional differences of
opinion about the proper role and power of the federal government and regional and
governorate authorities to make oil policy and revenue decisions. However, the
constitution’s ambiguity about the roles and powers of federal, regional, and
governorate authorities has contributed significantly to the ongoing impasse over
these issues.15 Articles 111 and 112 of the Iraqi constitution state that Iraq’s natural
resources are the property of “all the people of Iraq in all regions and governorates,”
and that “the federal government, with the producing governorates and regional
governments, shall undertake the management of oil and gas extracted from present
fields (italics added).” These provisions were included as a means of ensuring
consensus among Iraqis and the adoption of the constitution.
Iraq’s Constitutional Review Committee delivered its long-expected
recommendations for constitutional amendments in late May 2007, but left many
sensitive issues, including the distribution of oil revenue, to be decided by “the
political leadership in the country, to settle them for the interest of the nation and to
15 Further complicating matters are Article 115, which provides regional authorities the
power to override federal law in the event of conflicts with regional legislation, and Article
110, which grants powers to Iraq’s federal government to formulate “foreign sovereign
economic and trade policy” and regulate “commercial policy across regional and
governorate boundaries” similar to those granted to the United States Congress by the
commerce clause of the U.S. Constitution. For one analysis of these issues, see Joseph C.
Bell and Cheryl Saunders “Iraqi Oil Policy — Constitutional Issues Regarding Federal and
Regi onal A u t h o r i t y, ” M e mo r a n d u m, J u l y 7 , 2 0 0 6 . A va i l abl e at
[http://www.iraqrevenuewatch.org/reports/MEMORANDUMConstitutional%20Interpret
ation.DOC]

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CRS-9
guarantee rights to all parties.”16 Reportedly, Kurdish representatives on the
committee pressed for regional power to distribute oil revenue, while Sunni and
Shiite Arab members supported central government control over revenue collection
and distribution.17 Some observers argue that without a mutually acceptable
agreement on federal and regional power sharing as reflected in a constitutional
amendment, passage of the current draft hydrocarbon framework and revenue sharing
laws may not adequately ensure equitable distribution or contribute to political
reconciliation.
To date, Iraqi Kurds, acting through their Kurdistan Regional Government
(KRG), have demanded the right to sign oil development deals without much
national government interference. Other subnational groupings also may contest the
right of Iraq’s central government to control aspects of oil policy, including some
inhabitants of the oil-rich governorate of Al Basrah and members of the minority
Sunni Arab community who fear that a Shiite Arab and Kurdish dominated national
government may not administer hydrocarbon revenues fairly.
Revenue Sharing. The central role of the oil sector in Iraq’s economy, the
uneven geographic distribution of Iraq’s oil resources, and the legacy of communal
favoritism practiced under Saddam Hussein have created lasting concerns among
Iraqis about the future equitable distribution of oil revenues. These concerns have
deepened in the atmosphere of sectarian and ethnic violence that has gripped Iraq
since mid-2003. The principles and mechanisms by and through which Iraq’s oil
revenues are to be collected and distributed remain contested. Nevertheless, most
outside observers agree that an equitable revenue distribution formula will be
critically important to Iraq’s future economic health and political stability. Article
112 of Iraq’s constitution requires the Iraqi government to distribute revenues:
“in a fair manner in proportion to the population distribution in all parts of the
country, specifying an allotment for a specified period for the damaged regions
which were unjustly deprived of them by the former regime, and the regions that
were damaged afterwards in a way that ensures balanced development in
different areas of the country, and this shall be regulated by a law.”
Recent debate has centered on the content of draft revenue sharing legislation
that must be considered and approved as part of the hydrocarbon package. The
principal issues remain formulas for ensuring equitable distribution of revenues to
Iraq’s population and the mechanisms through which revenue will be collected and
distributed. Debate over distribution reflects efforts to agree on formulas for
ensuring equitable per capita distribution and providing for “damaged” and “unjustly
deprived” regions in line with Article 112 of the constitution. Debate on distribution
mechanisms focuses on whether or not regions or governorates should retain the right
to make decisions about revenue from oil and gas produced in their territory and
whether federal revenue distribution should be automatic and fixed or whether the
16 Damien Cave, “Iraqis Are Failing to Meet U.S. Benchmarks,” New York Times, June 13,
2007.
17 Mariam Karouny, “Iraq Lawmakers Deadlocked over Constitution Reforms,” Reuters,
May 22, 2007.

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CRS-10
federal government should retain discretion over the allocation of funding to regions
and governorates.
Foreign Participation. The sovereign control of Iraq’s oil resources and
revenues remains a subject of intense scrutiny, debate, and sensitivity in Iraq. Iraq
completed the nationalization of its oil resources in 1975, and oil exploration,
production, and exports were managed subsequently by state-run entities that
employed thousands of Iraqis. Given the effects of war, sanctions, and
mismanagement of the country’s oil infrastructure since 1980, many energy experts
believe Iraq will need significant infusions of investment, technology, and expertise
in order to rehabilitate and eventually expand its oil production capacity in line with
the current government’s plans.18 Iraq’s own oil revenues may provide a significant
resource base for such investment and for attracting technology and expertise.
However, some observers question the Iraqi government’s capacity to effectively
direct large amounts of its own resources toward hydrocarbon sector rehabilitation
in light of its recent failures to manage and expend funds set aside in the federal
budget for those purposes (see Revenues below).19
Over the short-term, Iraq’s unstable security situation presents a significant
barrier to large-scale investment by most international entities. Over the medium to
long term, Iraqis face difficult choices about the character and needs of their oil and
gas industries: preserving full control over all investment and technological inputs
to the sector may not be compatible with its technical needs. Whereas some Iraqis
oppose foreign participation on any terms, others support foreign participation in the
form of technical service contracts, and still others favor production sharing
agreements (PSAs), which would grant international companies exploration and
production rights over specific areas for specified periods, subject to the terms of
negotiated contracts.
Players and Positions
Iraqi attitudes on the future of the country’s oil industry are shaped by a number
of factors, including geography, ethnicity, political ideology, and party affiliation.
Sectarian identity politics undoubtedly is one important factor, particularly with
regard to the concerns of some members of the minority Sunni Arab community who
fear exclusion from decision-making bodies and inadequate revenue sharing.
However, viewing ongoing Iraqi debates over oil resources and revenue through a
purely sectarian lens obscures other important non-sectarian dynamics.
18 According to a May 2007 Government Accountability Office (GAO) report, “U.S.
officials and industry experts have stated that Iraq would need an estimated $20 billion to
$30 billion over the next several years to reach and sustain a crude oil production capacity
of 5 million barrels per day. This production goal is below the level identified in the Iraqi
2005-2007 National Development Strategy — at least 6 million barrels per day by 2015.”
GAO, “Rebuilding Iraq: Integrated Strategic Plan Needed to Help Restore Iraq’s Oil and
Electricity Sectors,” GAO-07-677, May 15, 2007.
19 See U.S. Department of Defense, Measuring Stability and Security in Iraq, June 2007,
Report to Congress in accordance with the Department of Defense Appropriations Act 2007
(Section 9010, Public Law 109-289), pp.9, 11-12.

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CRS-11
Constitutional questions relating to federal and regional authority concern all Iraqis,
and members of some ethnic and sectarian groups oppose positions and compromises
that their political leaders have suggested with regard to the package of draft
hydrocarbon legislation. Many Iraqi oil experts, technicians, and powerful unions
also have taken strong positions on the legislative package that do not correspond to
ethnic or sectarian affiliations or interests.
The Kurds: Regional Authority and Kirkuk. The Kurdistan Regional
Government (KRG) has signed oil and gas production sharing contracts with several
small international companies since 2003. Under the draft oil sector law now before
Iraq’s Council of Representatives, these existing contracts would be subject to review
by the Panel of Independent Advisers of the Federal Oil and Gas Council (FOGC).
Regional authorities would retain the right to license future international participation
in oil and gas development in their region, subject to the terms of the hydrocarbon
framework law, the Iraqi constitution, and the review of the FOGC. The KRG favors
the establishment of an automatic revenue distribution mechanism based on a per
capita formula in order to prevent political intervention at the federal government
level that would limit allocations to the Kurdish region.20
The Kurds, both through legal procedures as well as population movements,
also are trying to secure political control over the ethnically and religiously mixed
city of Kirkuk, which sits atop a large oil field in the northern governorate of Al
Tamim. The Kurds supported insertion of language in Iraq’s constitution (Article
140) requiring a vote by December 2007 on whether Kirkuk might formally join the
Kurdish-administered region. The Iraq Study Group report stated that this
referendum should be delayed (Recommendation 30). In June 2007, Kurdistan
Regional Government president Massoud Barzani stated that, “we will never delay;
we will never accept any delay in the implementation of Article 140.”21
Sunni Arabs: Revenue Sharing and Foreign Participation. The Sunni
Arab minority-dominated areas of Iraq have few proven crude oil or natural gas
deposits, although petroleum geologists differ as to whether substantial oil deposits
may be found in Iraq’s western Al Anbar governorate in the course of future
exploration. As such, the community’s concerns have focused on ensuring equitable
distribution of oil export revenues in the future. In some cases, Sunni parties also
have taken a hard-line position on preventing feared exploitation of Iraq’s oil
resources by international companies or other third parties. Sunni negotiators
opposed Iraq’s new constitution in part because it empowers regions in oil production
and revenue allocation policy. The Association of Muslim Scholars and the Iraqi
20 Yahia Said as quoted in Christina Parajon, “The Iraq Hydrocarbon Law: How and When?”
United States Institute of Peace Briefing, June 2007.
21 On June 12, 2005, Barzani was named “President of Kurdistan” by the 111-seat Kurdish
regional assembly that was elected in January 2005. Articles 63 to 67 of the Iraqi
constitution set general rules for the creation of executive authority by regional
governments. Radio Free Europe/Radio Liberty, “Iraq: Kurdish Official Says Kirkuk
Normalization To Proceed,” June 22, 2007.

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CRS-12
Accord Front, both Sunni groups, have criticized the draft oil legislation currently
under consideration.22
The United Iraqi Alliance: Investment and Development. The leading
parties of the ruling Shiite United Iraqi Alliance (UIA) — the Dawa Party and the
Supreme Islamic Iraqi Council (SIIC, formerly known as the Supreme Council for
Islamic Revolution in Iraq, or SCIRI), have supported the adoption of the
hydrocarbon legislative package as a means of reviving Iraq’s oil sector and
increasing government revenues. To date, ministries led by members of these parties
have faced mounting criticism over allegations of oil-related corruption and
mismanagement of export revenues. According to some analysts, differences within
the UIA with regard to principles of federalism could have important implications for
future oil sector decisions, particularly the SIIC’s reported preference for establishing
a large federal region encompassing all of the Shiite Arab majority governorates of
southern Iraq.23 However, at present, both the Dawa Party and the SIIC reportedly
favor the centralization of authority in federal decision making bodies likely to be
dominated by Shiite parties under Iraq’s democratic system. The UIA also reportedly
supports the creation of a strong Iraq National Oil Company to limit the influence of
potential political challengers affiliated with Iraq’s Southern Oil Company, the Iraq
Federation of Oil Unions, and the Fadilah (Virtue) party.
Basrah: Industry Unions and the Fadilah Party. Al Basrah governorate
holds most of Iraq’s proven oil resources and, as such, local political actors exert
influence over the hydrocarbon sector and consideration of the legislative package.
In particular, the 26,000 member Iraq Federation of Oil Unions has voiced its
members’ opposition to the current draft of the hydrocarbon framework legislation
and has demonstrated a capacity to disrupt oil production and refinery operations
with strikes.24 In May 2007, oil unions demanded participation in discussions of the
draft hydrocarbon legislation with Prime Minister Nouri Al Maliki, who reportedly
agreed to include the unions in future talks. By June 2007, the unions stated that
Maliki’s failure to do so was one contributing factor to their decision to launch a
strike that halted oil operations in southern Iraq for days. In response, the federal
government dispatched troops to the south, issued arrest warrants for union leaders,
and ultimately agreed in negotiations to establish a formal mechanism for union input
into the legislative drafting process.25
22 Sabah Jerges, “Iraqi Sunni Faction Calls for Ban on PSAs,” Platts Oilgram News, Volume
85, Issue 81, April 25, 2007.
23 Reidar Visser, “Basra Crude: The Great Game of Iraq’s ‘Southern’ Oil,” Norwegian
Institute of International Affairs, March 2007.
24 In June, the Iraqi Federation of Oil Unions led a two-day strike against the Southern
Pipeline Company over working conditions and threatened to spread the action to other
unions and facilities. The Iraqi government responded by deploying military forces to the
Company facilities and issuing arrest warrants for union leaders. See also, Ben Lando,
“Unions Could Sway Iraq Oil Law,” UPI, March 28, 2007; and Associated Press, “Iraqi Oil
Workers Threaten Open-Ended Strike In South,” June 6, 2007.
25 Ben Lando, “Iraq Oil Strike on Hold, Troops Remain,”UPI, June 8, 2007.

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CRS-13
The Fadilah (Virtue) party holds about 15 seats in Iraq’s Council of
Representatives and split from the ruling UIA coalition earlier this year. The
Governor of Al Basrah governorate and the director of the influential Southern Oil
Company are both Fadilah party members. Fadilah leaders have voiced similar
opinions to those of some oil union members and may support efforts to secure
regional status for Al Basrah and adjacent oil producing governorates of Maysan and
Dhi Qar that would increase southern Iraqis’ influence over national oil and gas
policy. Both the oil unions and the Fadilah party reportedly oppose the use of
production sharing agreements with international companies and may support the
introduction of foreign investment and technology on the basis of technical service
contracts similar to those used by other Gulf region producers.
International Energy Companies. The absence of an accepted
hydrocarbon framework presents a procedural obstacle to international investment
in Iraq’s oil and natural gas sector. However, energy experts often argue that the
persistence of insecurity is a more fundamental concern to international energy
companies. While some small international energy companies have signed limited
production sharing agreements in the Kurdish-controlled region of northern Iraq,
significant international investments in oil exploration and production elsewhere in
Iraq have not been made since 2003. Saddam Hussein’s government signed contracts
with several major international oil companies, and under the draft hydrocarbon
legislation currently under consideration, these contracts must be evaluated and re-
approved by the Federal Oil and Gas Council.26 In June 2007, Iraqi Oil Minister
Hussein al Shahristani told reporters that a 1997 contract signed by the Saddam
Hussein regime and China National Petroleum Corporation to develop the Al Ahdab
oil field in Wasit governorate “is still valid” and that the current Iraqi government
“will honor it,” pending the resolution of ongoing technical discussions.27
While the risks associated with investment in Iraq’s established producing oil
fields are relatively low, potential future investments in discovered but undeveloped
or exploration blocks could carry more significant risks. Investors are therefore likely
to seek contract terms that would provide adequate return and compensation.
According to some observers, concerns about corruption and the potential opacity of
Iraq’s regulatory and contracting processes may also deter some outside investment
over the long term, particularly if key decision making powers are delegated to
regional or governorate authorities.28 Nevertheless, some large companies have
expressed interest in oil and gas investment opportunities, including Royal Dutch
26 Some of the presumptive contracts for oil exploration in Iraq, signed with the government
of Saddam Hussein, include the following: Al Ahdab field — China National Petroleum
Corporation (China); Nassiriya field — Agip (Italy) and Repsol (Spain); West Qurna —
Lukoil (Russia); Majnoon — Total Fina Elf (France); Nahr Umar — Total Fina Elf
(France); Tuba — ONGC (India) and Sonatrach (Algeria); Ratawi — Royal Dutch Shell
(Britain and the Netherlands); Block 8 — ONGC (India). Dan Morgan and David Ottaway,
“In Iraqi War Scenario, Oil Is Key Issue,” Washington Post, September 15, 2002.
27 Jamil Anderlini and Steve Negus, “Iraq Revives Saddam Oil Deal with China,” Financial
Times (UK), June 23, 2007.
28 Oxford Analytica, “Iraq: Oil Law Necessary but not Sufficient for IOCs,” March 6, 2007.

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CRS-14
Shell, which reportedly held a meeting in Oman in March 2007 with Iraqi
government representatives to discuss significant gas investments.29
Oil Revenue and Security Concerns
Revenues
Current Arrangements. Iraq’s State Oil Marketing Organization (SOMO)
remains responsible for the sale and export of Iraqi crude oil. Under the terms of
United Nations Security Council resolution (UNSCR) 1483 (and renewed through
subsequent Security Council resolutions), revenue from Iraq’s oil exports is deposited
into an Iraq-controlled account held at the Federal Reserve Bank of New York
(FRBNY). Five percent of the funds are reserved for a U.N.-administered
compensation fund for reparations to the victims of the 1990 Iraqi invasion and
occupation of Kuwait. The remaining 95% is deposited into a Development Fund for
Iraq (DFI) account at the FRBNY and is then transferred to an Iraqi Ministry of
Finance account at the Central Bank of Iraq for further distribution to Iraqi
government ministries.30
Under the terms of UNSCR1546 (and renewed by subsequent resolutions), the
DFI is monitored by an International Advisory and Monitoring Board (IAMB), which
provides periodic reports on Iraq’s oil export revenue, Iraq’s use of its oil revenues,
and its oil production practices.31 UNSCR 1723 of November 28, 2006, extended the
IAMB monitoring of the DFI until December 31, 2007, subject to Iraqi government
review by June 15, 2007. In October 2006, the Iraqi cabinet approved the creation
of an oversight body known as the Committee of Financial Experts (COFE) to
monitor oil revenue collection and administration. The COFE remains under
development. The establishment of an audit oversight committee for the DFI and oil
export revenues is a structural benchmark under Iraq’s Stand-by Arrangement (SBA)
with the International Monetary Fund currently satisfied by the extension of the
IAMB arrangement. The signing of the SBA was a requirement for Iraq’s debt
reduction agreements with the members of the Paris Club.32
Resources, Expenditures, and Corruption. Periodic audits conducted
under the auspices of the IAMB have routinely found irreconcilable discrepancies in
oil production and export figures and DFI account receipt and distribution amounts.
Oil production and exports were conducted without metering equipment throughout
the Coalition Provisional Authority (CPA) period, and the IAMB reported in
29 Hassan Hafidh and Benoit Faucon, “Shell Intensifies Iraq Gas Lobbying With Secret
Oman Meeting,” Dow Jones, March 28, 2007.
30 Ernst & Young, Development Fund for Iraq — Statement of Cash Receipts and Payments
for the period from 1 July 2005 to 31 December 2005, September 19, 2006, p. 6.
31 The IAMB homepage is available at [http://www.iamb.info/]
32 See International Monetary Fund, Country Report No. 07/115, Iraq: Third and Fourth
Reviews Under the Stand-By Arrangement, March 2007; and, CRS Report RL33376 - Iraq’s
Debt Relief: Procedure and Potential Implications for International Debt Relief.

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CRS-15
December 2006 that, while “some metering has since been installed at oil terminals...
there continues to be no metering in the oil fields.” A May 2007 GAO report
confirmed that reliable metering in Iraq’s oil fields remains lacking and contributes
to the lack of reliable data on Iraq’s oil production and related revenue.33
Completed financial audits through December 2005 found that “no
comprehensive financial and internal controls policies and procedures manuals” were
present in Iraqi ministries that were spending oil export proceeds delivered through
the DFI system. Preliminary findings for 2006 state that Ministry of Finance internal
accounting procedures and controls remained inadequate.34 In addition to these
macro-level oil revenue findings, allegations of widespread corruption have been
leveled against a number of Iraqi ministries spending distributed oil export revenue,
often associated with weak contracting and cash management policies.
The United States has spent $1.6 billion in appropriated reconstruction funding
on efforts to repair and secure Iraq’s hydrocarbon production and export
infrastructure since 2003.35 In addition, as of December 2005, the United States had
administered over $2.8 billion in Iraqi funds from the DFI for oil infrastructure
projects.36 The June 2007 U.S. Department of Defense Measuring Stability and
Security in Iraq report states that the Iraqi government’s “failure to execute several
billion dollars of its own funds in oil sector capital investments” has limited the
overall recovery of the sector. According to the report, Iraq’s Ministry of Oil
expended only $90 million of its $3.5 billion capital budget in 2006, and the
Ministry’s 2007 allocation of $2.38 billion is less than half of the ministry’s own
estimated maintenance and growth needs.37
Security
Infrastructure Attacks and Smuggling. Iraq’s oil infrastructure suffered
little damage during the U.S.-led invasion (an estimated nine oil wells were set on
fire), but insurgents and smugglers have targeted oil infrastructure for political and
financial reasons since 2003. Iraq’s total pipeline system is over 4,300 miles long,
and most insurgent groups have focused their attacks on pipelines in northern Iraq
that feed the Iraq-Turkey oil export pipeline as a means of reducing government
33 James Glanz, “Billions in Oil Missing in Iraq, U.S. Study Finds,” New York Times, May
12, 2007; and, GAO, GAO-07-677, May 15, 2007, pp. 26-7.
34 Ernst & Young, Summary of Preliminary Findings for the six months ended June 30,
2006, Pending the Finalization and Approval of the Audit, November 6, 2006.
35 For more information about U.S. reconstruction spending and programs, see CRS Report
RL31833 - Iraq: Reconstruction Assistance.
36 GAO, GAO-07-677, May 15, 2007, p. 15.
37 U.S. Department of Defense, Measuring Stability and Security in Iraq, June 2007, Report
to Congress in accordance with the Department of Defense Appropriations Act 2007
(Section 9010, Public Law 109-289), pp.9, 11-12.

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CRS-16
export revenues.38 Highly organized smuggling operations have leveraged supply
and price imbalances in the Iraqi refined fuel market to create lucrative profit
opportunities, some of which may benefit Shiite political parties and militia groups.
In particular, smugglers have targeted pipelines in southern Iraq to force refining
operations to transport fuel products using more vulnerable tanker vehicles that can
be stolen, diverted, and manipulated.39 The U.S. military reports that some members
of the Iraqi Ministry of Defense Strategic Infrastructure Battalions and the Ministry
of Oil Protection Force are “sometimes suspected of being complicit in interdiction
and smuggling.”40
U.S. Policy and Issues for Congress
Both the Bush Administration and Congress have identified political
reconciliation and long-term economic development as key policy goals and
benchmarks for the progress of U.S. efforts in Iraq. The current military strategy
employed by U.S. forces in Iraq seeks to create a secure environment in which Iraqis
can resolve core political differences. In Iraq, the ongoing debate over a package of
four draft hydrocarbon laws reflects Iraqis’ unresolved political differences over the
powers reserved for federal and regional authorities, proper means for ensuring
equitable distribution of hydrocarbon revenues, and longstanding, shared concerns
about preserving Iraq’s unity and sovereignty.
In light of the U.S. military commitment and persistent Iraqi political
differences, Members of Congress and U.S. policymakers face a number of
challenging questions: To what extent does the U.S. investment in improving Iraq’s
security permit the United States to influence either the pace or content of Iraqi
debates over the future management of their sovereign economic resources? Should
the United States encourage Iraqis to complete constitutional reforms that will
resolve core political differences before promoting the adoption and implementation
of hydrocarbon legislation? How can the United States most effectively ensure that
Iraqis adopt equitable revenue sharing mechanisms? Should the U.S. government
promote international investment in Iraq’s oil and gas sector and, if so, in what form
and on what scale?
To the extent that Iraqi factions perceive the United States to be promoting
legislative solutions or processes opposed to or supportive of their interests, they may
oppose or support the hydrocarbon legislation and U.S. preferences and policy goals.
38 See Michael Knights, “Iraqi Critical Infrastructure Faces Sophisticated Threat,” Jane’s
Intelligence Review, January 1, 2006.
39 The Iraqi government imports refined fuels because it lacks sufficient refining capacity
to meet local demand. Saddam-era price subsidies also remain in place, making Iraqi fuel
products cheaper than those found in neighboring countries. See James Glanz and Robert
F. Worth, “Attacks on Oil Industry in Iraq Aid a Vast Smuggling Network,” New York
Times, June 4, 2006.
40 For example, the June 2007 Measuring Stability and Security in Iraq report states that, “As
much as 70% of the fuel processed at Bayji was lost to the black market — possibly as much
as US$2 billion a year.”

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CRS-17
If constitutional disputes over federal and regional authority remain unresolved, the
durability of compromises reached with regard to the hydrocarbon legislation may
be undermined. Revenue sharing mechanisms based on per capita population
formulas may ensure formerly disadvantaged regions receive adequate shares of oil
and gas proceeds, but could create new resentment in less populous governorates,
including areas inhabited by Iraq’s minority Sunni Arab population. International
investment and technology may be necessary in light of the current Iraqi
government’s ambitious plans for the expansion of Iraq’s oil and gas production.
However, the terms and conditions of international participation are likely to remain
highly controversial, with powerful Iraqi interest groups taking opposing positions.
The public positions that Members of Congress and Administration officials take on
each of these questions will likely influence Iraqi attitudes toward the U.S. presence
in Iraq, toward the draft legislative package, and toward each other.
Frequently Asked Questions
Privatization and Foreign Participation. Some U.S. and international
press coverage of Iraq’s draft hydrocarbon framework legislation has alleged that the
draft law would require the Iraqi government to use contracts known as production
sharing agreements in future dealings with international oil companies. While the
draft legislation represents a reversal of the nationalization of Iraq’s hydrocarbon
sector insofar as it allows foreign investment and participation in exploration,
production, and development, the legislation does not mandate the use of production
sharing agreements or any other type of model contract. Rather, the legislation would
require the Federal Oil and Gas Council to develop model contracts subject to terms
of the law that seek to preserve economic return for Iraq, the sovereign control of oil
and gas resources, and production plans in line with Iraq’s long-term development.
While Iraqis may choose to use production sharing agreements or service contracts
in the future, the legislation currently under consideration would not require them to
use one specific type or to agree to specific revenue, tax, or ownership terms with
potential international partners.
U.S. Legal and Diplomatic Support.41 Several press reports have alleged
that U.S. government personnel, U.S. contractors, or international oil executives may
have had a role in drafting or otherwise contributing to the creation of the draft
hydrocarbon framework legislation. In response to a March 2007 CRS inquiry, the
Administration reported that the “U.S. Government did not provide any drafting
input to the recent hydrocarbon law; the Iraqis have not asked for that kind of
assistance on that law or on the revenue sharing law.”
The U.S. Agency for International Development (USAID) funded a Baghdad-
based Petroleum Legal and Regulatory Advisor on a contract basis from mid-2006
to April 2007.42 The advisor worked with the U.S. Embassy and coordinated with
five other contracted lawyers affiliated with the U.S. Department of Commerce
(DOC), and the U.S. Department of Energy (DOE). Together the lawyers worked to
41 This information is drawn from an interagency Administration response to a CRS inquiry,
drafted by the U.S. Department of State Bureau for Near Eastern Affairs on March 19, 2007.
42 BearingPoint held the contract for this advisory coordinator position.

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CRS-18
“assist the Iraqis by providing commentary and case studies,” which, according to
USAID, were designed to “help lay the foundation for a legal, regulatory, and tax
environment conducive to domestic and foreign investment in [Iraq’s] energy sector.”
The legal advisory effort concluded in April 2007.
In recent months, the U.S. Embassy in Baghdad has hosted and arranged a
number of meetings among key Iraqi political figures to encourage discussion and
compromise over outstanding legislative and constitutional reforms, including the
package of hydrocarbon legislation. According to the U.S. Department of State, an
“Energy Fusion Cell” made up of U.S. Embassy personnel, representatives of
Multinational Force-Iraq (MNF-I), and Iraq’s Ministry of Oil and Ministry of
Electricity also is working to develop an integrated national energy strategy to better
coordinate Iraqi budget allocations, reconstruction plans, and production goals.43
Congressional Benchmarks and Other Legislation
! Section 1314 of the FY2007 Supplemental Appropriations Act
[P.L.110-28] specifically identifies the enactment and
implementation of legislation “to ensure the equitable distribution of
hydrocarbon resources of the people of Iraq without regard to the
sect or ethnicity of recipients” and “to ensure that the energy
resources of Iraq benefit Sunni Arabs, Shia Arabs, Kurds, and other
Iraqi citizens in an equitable manner” as benchmarks on which the
President must report to Congress in July and September 2007.
Section 3301 of the act states that no funds appropriated by the act
or any other act may be used “to exercise United States control over
any oil resource of Iraq.”
! Section 8 of H.R. 2574, the Iraq Study Group Recommendations
Implementation Act of 2007, includes a detailed statement of policy
on the oil sector in Iraq. The bill would require the Administration
to report on the implementation of the bill’s reformulation of the
Iraq Study Group recommendations (including Section 8) 90 days
after enactment.
! Section 4 of S. 670, the Iraq Troop Protection and Reduction Act of
2007, would prohibit the provision of appropriated funds to the
Government of Iraq for security purposes unless the President
certifies to Congress that the GOI “provides for an equitable
distribution of the oil revenues of Iraq.”
! S.Con.Res.37 states that the United States should encourage Iraqis
to adopt oil revenue sharing legislation as a “critical component of
a comprehensive political settlement based upon federalism.”
43 GAO, GAO-07-677, May 15, 2007, p. 45.

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! Other resolutions and bills include statements of policy declaring
that it is not and shall not be the policy of the United States to
control Iraq’s oil resources. See H.Con.Res. 46 and H.R. 663.

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