by Rex J. Zedalis. New York: Cambridge University Press, 2009. 335pp. Hardback. $90.00/£59.00. ISBN: 9780521766616. eBook format. $72.00. ISBN: 9780511590986.
Reviewed by Victoria A. Redd, The Journal Offices, University of Florida Levin College of Law. Email: reddva [at] law.ufl.edu.
Iraq is a country in transition. Not only is the government in a state of change (from a military dictatorship to democracy), but the potential control of its richest resource, oil and gas is at stake. Instability of the Iraqi economy has generated skyrocketing oil prices which in turn has affected the U.S. economy. What is left to be accomplished in the wake of the 2003 U.S. Invasion of Iraq, is a stable government to replace Saddam’s regime in order to run the country and a framework of law to govern its energy resources. The need for an approved national oil law is important considering that the country’s reserves may be the third largest in the world (with Iraq’s minimal infrastructure for their petroleum industry, and the major oil corporations wanting to get access to their reserves). In fact, when comparing the two thousand oil wells in Iraq to the one million oil wells in Texas, we find that Iraq’s oil has yet to be tapped for use, due to the lack of maintenance in and investment of the wells under Saddam’s regime (About.com U.S. Government Info 2003). Because Iraq’s economy (based 90% on the petroleum industry) is so transitional (Madhani 2009), there is much turmoil that needs to be cleared up. For example, what role will the Iraqi Constitution play in overseeing Iraq’s petroleum industry? And if passed, how should the proposed Iraqi Oil and Gas Law govern oil contracting and regulation? Finally, once in place, how can a stable Iraqi government and Iraqi Oil and Gas Law make it better for me and the world as a whole?
Lawyers and advisors who have an interest in the Middle East and in these types of questions and wish to understand the rule of law in Iraq regarding the petroleum industry can benefit by reading Rex J. Zedalis’s book THE LEGAL DIMENSIONS OF OIL AND GAS IN IRAQ: CURRENT REALITY AND FUTURE PROSPECTS. Titled correctly, this is one of the first books to describe the complexities of changing a legal system from a dictatorship to a democracy (along with describing the problems involved with a Constitution which focuses on the well-being of the country’s citizens), especially in regard to the petroleum industry. Zedalis, who has been at the University of Tulsa for nearly thirty years and is considered an expert on international business transactions and international energy and natural resources law, has used his scholarly insight to open the door to understanding the current and future prospects of the Iraqi Oil and Gas Law. Although this book gives a detailed [*558] solution (sometimes to the point of ad infinitum) from start to finish of setting up a new energy law, it also goes into the many issues and potential problems of doing so or not doing so. However more importantly, Zedalis details the many paths and possible outcomes for Iraq in relation to its Constitution and the federal oil and gas framework law.
Iraq’s stability, if broken down to stressors, revolves around Arbil and Baghdad: Arbil is the seat of the Kurdistan Regional Government (KRG) and Baghdad the largest city and also the capital of Iraq. The country has eighteen governorates. Of those governorates, sixteen voted to approve the Iraqi Constitution of 2005 (p.27), replacing the former Law of Administration for the State of Iraq for the Transitional Period. The Constitution represents a compromise of a majority vote of more than two-thirds of the population. At first blush, the Constitution appears to be a document that deals mostly with religious freedom, however, Articles 108 to 115 have provisions that would affect the petroleum industry in three areas. First, it would affect the allocation of constitutional powers to subcentral governmental entities in the area of oil and gas, covering controversies that stem from the KRG against Baghdad – the central government; this is mostly because of differences in ethnic and sectarian divisions. Second, it would affect how the Constitution will handle the matter of revenue collection and distribution. In Article 112 in the initial paragraph it simply states that this “shall be regulated by a law,” a statement that points out a necessity for a revenue-sharing law. Third, what the Constitution says will affect the current and future oil and gas fields. Article 112, paragraph two states “[t]he federal government, with the producing regional and governorate governments, shall together formulate the necessary strategic policies to develop the oil and gas wealth in a way that achieves the highest benefit to the Iraqi people. . . .”
Article 112 has for its first paragraph instructions on the immediate need of passing a revenue-sharing law and has for its second paragraph instructions on creating a governing body to formulate strategic policies for the future of Iraq’s oil and gas fields. The latter is to be done by the federal government with the aid of the “regional and governorate governments” – using “the most advanced techniques of the market principles [to encourage] investment.” But, even with numerous regions or governorates, the Iraqi Constitution only recognizes one of its regions. Additionally, Zedalis mentions Kirkuk, a political region of Iraq named in the Iraqi Constitution (requesting “a referendum in Kirkuk . . . to determine the will of their citizens” (art. 140)), who wants to be recognized like the Kurdistan region (“Legislation enacted in the region of Kurdistan since 1992 shall remain in force” (art. 141)), and there is also a reference to other disputed territories (grouped in with Kirkuk in Article 140 stating “Kirkuk and other disputed territories”) to contend with later should it come up. According to the Iraqi Constitution of 2005, two bodies will handle legislative matters: The Council of Representatives (consisting of 325 members elected for four years), normally meeting twice a year, duties will include passing federal laws, overseeing the executive, ratifying treaties, and approving nominations of specified officials. The second body is [*559] the Federation Council (art. 135), however, this Council has not been determined yet by the Council of Representatives. According to the U.S. Department of States Bureau of Near Eastern Affairs, as of August 11, 2010, there is currently a stalemate delaying the forming of a new government that has lasted 5 months “creating ‘conditions that could be exploited by elements opposed to Iraq’s democratic transition.’”
Zedalis explains in three parts that accompanying Iraq’s tremendous energy resources is a great legal responsibility dealing with the petroleum industry. Part 1 begins with examining the background and factors related to the Iraqi Oil and Gas Law starting with the 1870s when “the first major drilling of oil in the Baku area of Azerbaijan” (p.3) took place in Northern Iraq, leading to the expectancy by world naval powers (during the use of battleships or “ironclad warships” in the industrial age) of a way to acquire these resources for fuel. In Part 2, Zedalis discusses the “fundamental legislative measures,” a means by which the current framework law or the Iraqi Constitution of 2005 has been put in place with general principles that need to be expanded on into four additional “measures” to better govern the petroleum industry (p.57). Lastly, Zedalis in Part 3 elaborates on how the Constitution and the additional measures will be beneficial, but will yield their share of complications. He describes and examines both – the “more pressing current legal issues” and the “potential future legal problems” (p.209).
The more pressing current legal issues deal with legal principles that are in place (and expire at a particular point in time – including some that have expired between the publication of the book and the writing of this review) which give foreign claimants a liability against Iraq, causing the country’s resources to be unprotected. So while, the U.N. Security Council put in place appropriate measures, these resolutions have since expired (as of December 31, 2009). Potential future legal problems are simply just that, the possibility of the failure of any legislative measures that are set up to deal with the Iraqi petroleum industry. These future problems are about the creation of a new political and legislative process, how well the process works, and if it will enable the resources and its revenue to be available for Iraq. The efforts of the United States have been to induce an Iraqi democratic society to benefit its people and the world; this campaign will soon be proven now that U.S. combat troops have pulled out.
Unfortunately, Iraq’s democracy has several threats: the current struggle between the Baghdad and Kurdistan governments; the reorganization of the Iraq National Oil Company (INOC) and the Ministry of Oil to control the petroleum industry (as instituted by the Dubai Annexes); two legal measures (the Iraqi Constitution and the Kurdistan Regional Government Law) to govern the current and future oil and gas fields and revenues, revenue-sharing, and production-sharing contracts (p.295). Because of these problems, given that the democratic government may fall apart, Zedalis spends the last chapter of his book analyzing various scenarios and theorizing about what could actually happen to Iraq. One good example, which touches on every threat, is the confusion that emanates from the [*560] varying views of the federal and regional governments in regard to the petroleum industry. Zedalis feels that putting in place four laws could clear all of the chaos up. Basically, he states that there is a need for “a framework law on oil and gas, a revenue-sharing law, a law reconstituting INOC, and a law reorganizing the Iraqi Ministry of Oil.”
There are other concerns about Iraq’s future that actually have nothing to do with the petroleum industry, but still will affect the economy, and most certainly the quality of life of Iraqis. “For instance, an eventual draw-down in U.S. and coalition forces could leave a power vacuum that is filled by terrorists” (p.296), although Zedalis adds that this is unlikely. Confidently, he feels that any elected U.S. administration will not “allow this to happen.” Still there are other concerns about the Kurds not following federal authority – as evidenced by, for example, the Kurdistan Regional Government’s 2007 Oil and Gas Law and the more than two dozen illegal production-sharing contracts floating around – and the country splitting into two or more separate regimes (p.297). Although its been reported that “dividing up Iraq along ethnic lines and redrawing national borders was part of” the initial 2003 Invasion of Iraq plan (Halbert 2002; STRATFOR Global Intelligence Website), Zedalis sees no clear path to this now.
A complete split of Iraq would mean, simply, that the ethnic factions in Iraq would bond together – to create each their own nation-state, having their own constitution and laws governing their share of the gas and oil resources. This would make the neighboring countries like Turkey and Iran uncomfortable. Turkey’s apprehensions would come from its government’s fear about Kurdish rebels using Iraq as their base and Iran’s anxieties come from its Shiite population who wish to continue their own influence in an unstable Iraq. Of course along with the complete split of Iraq would go the Iraqi Constitution of 2005, because the provisions dealing with obligations between the regions would be void. According to Zedalis, this “formal and complete political split” (p.310) could create three challenges for the petroleum industry: “[L]egal control over oil and gas activities, the sharing of revenues resulting from such, and the distribution between government entities of authority to oversee and regulate oil and gas activities” (p.311). Zedalis feels that if Iraq split in two it would be workable allowing for compromises and arrangements to be negotiated: However, “[t]hese complexities would only be exponentially increased were Iraq to split into three . . . . Might it also invoke Saddam-era laws and practices, given that Saddam himself had headed a Sunni-controlled government?” (p.314).
If Iraq split into two (or three) nations, the laws or legal framework that would be in place most likely will not be adequate. Zedalis also believes that if there is a Saddam-type government as one of the regimes – if both, or all three, are not democracies – it is likely that their laws will be subjective:“[b]y their very nature, since such rules and practices emerged from dictatorship, much must have been left to the subjective whim of the leader and his administrative cohorts, rather than being generated by rational decision making controlled by straightforward preexistent standards.” (p.314). So, in absence of the [*561] needed legal framework, a nation-state could use the Iraqi Constitution of 2005 or a version of it – this would be better than nothing, but there would still be some holes to patch up. This could be done by using the Constitution’s general principles, taking out the provisions dealing with obligations between the regions, and expanding on other measures as previously suggested. Could that solve all the problems?
No, but it could resolve half the battle between the warring factions. And, what additional problems would be left? Would competition play a role between the nation-states or would one nation-state bully the rest? Zedalis concludes that both scenarios are highly unlikely. He believes that one of two things will likely happen instead – the nation-states will be “going their own ways while remaining together politically” (p.317), or perhaps, “Iraq will [split] apart as two or more separate states” – these circumstances are both workable situations and call for less involvement between the nations.
In the Epilogue, Zedalis adds, “To be sure, the ethnic and sectarian tensions in Iraq seriously compound the normal impediments to the process of flexibility and compromise,” that we normally expect as Westerners in any negotiation causing a delay in resolution. This situation is especially difficult when creating legal policies against a backdrop of uncertainty, as with the changing of U.S. administrations and the idea of “buying time,” (p.323; Greenway 2008) to keep the American and coalition troops in the country, and of course, blending the needs of the centralists with the regionalists.
There have been two legislative laws created, the Hydrocarbons Package covering the Oil and Gas Framework Law, which has not been approved yet, and the Non-Government Organizations Law to regulate non-governmental organizations and their funding (Bureau of Near Eastern Affairs 2010). In his Epilogue, Zedalis tries to summarize this problem – “These tensions make movement toward success exceptionally slow, halting, and as wandering as it is straightline” (p.323) – some of this blame he put on the then upcoming change in U.S. administration since it was before the 2008 election; unfortunately here we are two years later and we still have the same problem.
In closing, it was never Zedalis’s point in his book to discuss the Iraqi political situation, but rather to give a description and critical analysis of the Iraqi Oil and Gas Law. This topic has covered the 2005 Iraqi Constitution, oil and gas framework law, the federal revenue-sharing law, and the KRG’s Oil and Gas Law. Zedalis’s analysis has been informative, revealing, and at times frightening. Zedalis’s book will be useful to anyone who wants a better understanding of the processes that take place when developing law – particularly anyone with a relevant interest in oil and gas legal rules.
About.com. 2003. “U.S. Government Info, Iraq: Oil and Economy: Sands of Iraq hold World’s 2nd Largest Oil Reserves.” http://usgovinfo.about.com/library/weekly/aairaqioil.htm. [*562]
Bureau of Near Eastern Affairs. 2010. U.S. Department of State, Iraq Status Report, August 11, 2010, at 6.
Greenway, H.D.S. 2008. Op-Ed, “Buying Time in Iraq,” BOSTON GLOBE, April 8, 2008.
Halbert, Gary D. 2002. U.S. 2002 Pre-Invasion Plan to Divide Iraq Into Three Separate States, Global Research.ca, http://www.globalresearch.ca/index.php?context=va&aid=2250.
Iraqi Constitution, available at www.uniraq.org/documents/iraqi_constitution.pdf.
Law of Administration for the State of Iraq, Answers.com, Transcript available at http://www.answers.com/topic/law-of-administration-for-the-state-of-iraq.
Madhani, Aamer. 2009. “Iraq’s Economy Sputters as Oil Prices Drop,” USA TODAY, January 29, 2009.
STRATFOR Global Intelligence Website, http://www.stratfor.com/.
© Copyright 2010 by the author, Victoria A. Redd