First-step analysis: the oil market and regulation in Iraq about:reader?url=https%3A%2F%2Ffanyv88.com%3A443%2Fhttps%2Fwww.lexology.com%2Flibrary%2F...

lexology.com

First-step analysis: the oil market and

regulation in Iraq
Hadeel A. Hasan, Slava Kiryushin

30-39 minutes

General

Key commercial aspects

Describe, in general terms, the key commercial aspects of the

oil sector in your country.

The development of Iraq’s oil industry began in the aftermath of

World War I, while the country was occupied by Britain under the
League of Nations mandate. Prior to World War I, the territory of
Iraq was a part of the Ottoman Empire and comprised of three
provinces: Mosul in the north; Baghdad in the centre; and Basra in
the south. The newly created country united three separate
administrative areas with different religious and ethnic elements:
Mosul was Kurdish and Sunni, Baghdad was Sunni but Arab and
Basra was Arab but Shi’a. This factor played an important role in
the development of the Iraqi oil industry.

In 1923, the first oil field, Naft Khana, was discovered in Iraq. In
1925, the British-installed ruler of Iraq, King Faisal, entered into a

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concession agreement with the Iraq Petroleum Company (IPC –

formerly known as the Turkish Petroleum Company), a consortium
of British, French and (later) American companies. Combined with
two further concessions granted in the 1930s, the IPC obtained
rights to all hydrocarbons in the entire country for approximately 75
years.

Although it became a sovereign state in 1932, control of the

country's oil was fought for by the Iraqi government for decades.
The dominance of the IPC was eroded in 1958 following the Iraqi
revolution. In 1961, the government promulgated Law No. 80 of
1961, pursuant to which the government took control of
approximately 99.5 per cent of the exploration areas under the
concession agreements with the IPC and its subsidiaries. These
areas were later transferred to the Iraq National Oil Company
(INOC) under Law No. 97 of 1967. The nationalisation process
was eventually completed in 1975. In the following decade, the
INOC was merged and subsumed by the Ministry of Oil of Iraq
(MOO) in 1987.

The subsequent development of the Iraqi oil sector was critically

affected by revolutions, conflicts, wars, uncertainty and instability,
including the Iran-Iraq war of 1980 to 1988, the Iraqi invasion of
Kuwait in 1990 and the ensuing Gulf War conflict, the years of
restrictions and underinvestment due to United Nations sanctions,
the 2003 war and regional destabilisation caused by the Islamic
State terrorist group. In addition, similarly to other countries heavily
reliant on oil production and exports, Iraq has been suffering from
the volatility of oil prices and coronavirus crisis, as well as
restrictions from the Organization of the Petroleum Exporting
Countries (OPEC) on the volume of production. Thus, in 2020 and

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2021, Iraq committed to OPEC+ to cut its production as the

pandemic affected the global demand. The recent increase in oil
prices as demand outstrips supply, driven by the steady recovery
of the global economy and the boycott of Russian energy imports,
poses different risks to major oil suppliers like Iraq. While the
OPEC+ production quota for Iraq has increased to 4.28Mmb/d
(million barrels per day) for January 2022 (an increase by around
400,000b/d since the same time last year), continually high oil
prices could accelerate the transition to electric charging vehicles
as noted by an Iraq’s oil minister, Mr Ihsan Abdul Jabbar.

Reserves and production

Iraq may be one of the few places left on our planet where vast oil
resources remain under-exploited. In 2020, the country’s reserves
were estimated at 145bnb (billion barrels) (OPEC Annual
Statistical Bulletin 2021). The country holds the world’s fifth-largest
proven oil reserves (after only Venezuela, the Kingdom of Saudi
Arabia (KSA), Canada and Iran). It is the second-largest OPEC oil
producer after the KSA and has the potential to become one of the
largest oil producers worldwide (International Energy Agency).

The majority of the known oil reserves in Iraq form a belt that
spreads along the eastern edge of the country. Iraq has seven
fields that are considered super-giant (over 5bnb), including
Rumaila, Kirkuk, Majnoon, West Qurna 1, West Qurna 2, Halfaya
and Nahr Umar, as well as 22 known giant fields (over 1bnb). The
concentration of super-giant fields in the Southeast of Iraq
accounts for approximately 70–80 per cent of the country’s proven
oil reserves. An estimated 20 per cent is located in the north, near
Kirkuk, Mosul and Khanaqin. Iraq’s crude oil production nearly
doubled over the past decade, reaching an average of 4.7Mmb/d

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(million barrels per day) in 2019 (US Energy Information

Administration (EIA) 2021). The increase in production was largely
due to the four licensing rounds held by the MOO since 2009,
following which, a number of technical service contracts (TSCs) for
producing fields and development production service contracts
(DPSCs) for development and producing fields were granted to the
winning bidders. The award of a number of production sharing
agreements (PSAs) by the Kurdistan Regional Government (KRG)
to international oil companies (IOCs) has also contributed to the
production increase. Notwithstanding their title, the TSCs are
closer in nature to traditional PSAs rather than traditional TSCs.
Under the TSCs, IOCs operate through a joint venture (JV) with
the regional national oil company, recover their costs from the
production and receive remuneration fee per barrel produced
above pre-determined levels.

Export and infrastructure

The budget for 2019, which included KRG’s contribution, was

forecast at US$112 billion based on oil exports of 3.88Mmb/d at a
price of US$56 per barrel. The 2020 federal budget was delayed
for several months until the government decided to dismiss it and
instead focus on formulating a budget for 2021. In March 2021,
Iraq's parliament approved a 2021 budget of US$89.65 billion with
an estimated financial deficit of US$19.79 billion. The 2021 budget
set an oil price at US$45 a barrel and expected oil exports of
3.25Mmb/d including 250,000b/d from the KRG. 

Iraq’s oil can be divided into two parts: northern oil, which is
controlled de facto by the KRG, and central and southern oil,
which is controlled by Baghdad and is exported by tanker from the
port of Basra.

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Northern exports

Land-locked, northern Iraqi oil has been historically exported

through transitional pipelines to the Mediterranean coast, from
where tankers transfer the oil to the world markets, mostly in
Europe. Thus, the IPC relied on the pipelines through Syria in
1929–1972 and 1979–1982, which have been closed ever since.
In 1977, the 500,000b/d Kirkuk-Ceyhan Pipeline to Turkey was
built and, in 1988, was expanded to 1.5Mmb/d. The pipeline
operated until 1990, but the part of the pipeline within Iraq became
inoperable due to war and conflict. In 2013, the KRG constructed a
new pipeline running from Khurmala at the head of the Kirkuk
oilfield to the Turkish border, where it connects to the Turkish
section of the original Kirkuk-Ceyhan system. The Khurmala-
Ceyhan Pipeline has a usable capacity of 700,000b/d (EIA).
Exports from Kirkuk through Ceyhan were halted after an Iraq
military offensive to retake the disputed territories that had come
under Kurdish control in 2014. The offensive was a response to
the independence referendum held on 25 September 2017 by the
KRG. However, in November 2018, exports through the pipeline
were resumed. Around 106,000b/d was exported from Kirkuk in
2019, most of which was transported through Ceyhan.

Central and southern exports

Baghdad's oil is predominantly located in the southern province of

Basra. The oil is transported by tanker trucks within the country
and exported mainly through the Persian Gulf to the global
markets, including in Asia. The options for exporting Baghdad oil
from the Persian Gulf are geographically limited as Iraq's coastline
is only around 36km long and is marshy and shallow, making it is
difficult to construct a large onshore export terminal to load

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supertankers. Therefore, Iraq has relied on its offshore terminals,

including Al-Basra (formerly Mina al-Bakr) and Khor Al-Amaya to
export crude oil. The loading capacity of the terminals was
reduced after enduring three wars, including the Iran-Iraq War, but
have been restored to some extent in recent years.

Furthermore, in 2007, the MOO launched the Crude Oil Export

Expansion Project, which added five single point mooring systems
(SPMs) to Al-Basra and Khor Al-Maya with a combined loading
capacity of 4.6Mmb/d. However, the actual loadings are typically
less because of the lack of sufficient pumping stations onshore
(EIA). Southern Iraq exports in July 2020 were at an average of
2.7Mmb/d. The SPMs have provided the much-needed expansion
of shipping capacity in the southern export outlets. However, the
country will need to further its storage capacity if it hopes to
increase crude oil production. As of March 2021, the State
Organisation for Marketing of Oil (SOMO) capacity in the south of
Iraq was about 10 million barrels.

Export expansion plans

As Iraq exports most of its crude oil production, the government is

seeking to diversify its oil export outlets. In recent years, Iraq has
announced plans to construct oil pipelines to export oil through
Jordan and Syria, a new pipeline to export more oil through Turkey
and internal pipelines to transport crude oil within the country.

Iraq and Jordan are yet to finalise a long-awaited oil pipeline

between the two countries. In January 2022, the Jordanian
Minister of Energy and Mineral Resources, Saleh Kharabsheh,
said his Iraqi counterpart Ihsan Abdul Jabbar informed him of
Iraq’s approval of the project and agreed to complete procedures

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necessary for signing the agreement. The multibillion-dollar project

includes 1,665km of pipeline to transfer crude with a capacity of
1Mmb/d that will run along an amended route from Basra to Najaf
in the centre of Iraq before following the KSA border to the port of
Aqaba in Jordan.

In addition, the Iraqi government is planning to construct a pipeline

between the newly discovered oilfields in Maysan and storage
depots at the Al-Fao terminal.

There have also been plans to create unique integrated upstream-

downstream projects, such as the Nasiriya Integrated Project
(NIP), to boost production and refining capacity. Thus, the scope of
NIP includes a collateral construction of a 300,000b/d refinery. The
Iraqi government has already signed an 18-month contract with
Weatherford International and Iraqi Drilling Company for the
drilling and completion of 20 wells in the Al-Nasiriyah oil field.

Oil refineries 

Most of the country’s consumption needs are met by the domestic

refineries, although Iraq does rely on imports of certain petroleum
products, including diesel, gasoline and, to a smaller extent,
kerosene.

Iraq has three major oil refineries in Daura, Basra and Baiji,
supported by a number of smaller refineries in Maysan and Erbil
and seven smaller distillation units. The refinery in Baiji is subject
to renovation after being sabotaged following the IS capture of the
northern area of Iraq.

Iraq's refinery capacity was approximately 828,500b/d in 2020

(OPEC Annual Statistical Bulletin 2021). The increase in refining
capacity in recent years is attributed to the expansion at the Doura

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and Basra refineries and the restarting of the Salahuddin 2

production unit at the Al-Somood refinery (previously the Baiji
refinery).

Iraqi refineries do not produce enough gasoline and diesel to meet

domestic consumption, and the government is planning to build
four more refineries to meet the demand. Two out of the four new
refineries are to be constructed with the help of foreign investment:
Maysan (the designated project company is Missan International
Refinery Company) and Kirkuk (by Rania International Company).
The other two refineries shall be constructed by engineering,
procurement and construction contractors on behalf of the
government: Nasiriya and Kerbala (by Hyundai Engineering and
Construction). While the plans for the construction of the refineries
were announced in 2010, only the Kerbala project has seen
noticeable construction progress. In addition, the Iraqi government
has recently awarded an agreement to build a new 300,000b/d
refinery in the port of Fao to Chinese state-owned company
CNCEC and entered into an initial agreement for a new 70,000b/d
refinery nearby Qayara field in Northern Iraq with Swedish firm
Seab and Turkish conglomerate Limak Holding.

Industry participants

The Iraqi oil industry is currently divided between three major

INOC subsidiaries: North Oil Company, Basra Oil Company
(previously South Oil Company) and Maysan Oil Company.

In 2018, the Iraqi parliament issued a new Iraqi National Oil

Company Law No. 4 of 2018 (INOC Law) establishing INOC.
Under the INOC Law, the INOC shall assume the capacity of the
INOC established under Law No. 123 of 1967 and shall fully own a

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list of state-owned companies, including SOMO, Oil Exploration

Company, Iraqi Drilling Company, North Oil Company, Midland Oil
Company, Maysan Oil Company, Dhi Qar Oil Company, Basra Oil
Company and Iraqi Oil Tankers Company. The Federal Supreme
Court declared the transfer of ownership of the SOMO to the INOC
unconstitutional along with a number of other provisions of the
INOC Law in its decision in January 2019. The Iraqi Cabinet is
currently working on the final list of amendments to the INOC Law
to be submitted to the parliament so that the new law can come
into effect. Please see paragraph 17.1.1 for more information.

Following the licensing rounds in 2009 and 2012, the MOO

awarded a number of TSCs and DPSCs to IOCs. Furthermore,
KRGs signed a number of PSAs with IOCs in recent years. The
state partner in such service contracts varies subject to each case.
IOCs with service contracts in Iraq include such established
names as ExxonMobil, BP, Eni, CNPC, Lukoil, Kogas, Petronas,
Sonangol, Kuwait Energy, Dragon Oil, TPAO, Japex, Gazprom
Neft, Rosneft and Total, among others.

Energy mix

What percentage of your country’s energy needs is covered,

directly or indirectly, by oil or gas as opposed to nuclear or
non-conventional sources? What percentage of the petroleum
product needs of your country is supplied with domestic
production?

Approximately 90 per cent of the domestic energy consumption in

Iraq is covered by crude oil, with the remaining 10 per cent
covered by natural gas and hydroelectric power from the Mosul
dam.

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Iraq is able to produce enough heavy fuel oil to meet its domestic
consumption, but not enough of certain other petroleum products,
for instance, diesel, gasoline and, to a lesser extent, kerosene. It,
therefore, relies on refined petroleum product imports of such
products. The SOMO has recently reported that in 2020,
1,987,540.930 tons of gasoline and 1,354,286.686 tons of diesel
were exported to Iraq.

Natural gas

Iraqi domestic consumption of energy has seen a steady increase

since 2003 due to the growing population and electricity
consumption. However, unlike the domestic consumption of
electricity and petroleum, the consumption of natural gas has not
seen the same increase. In fact, due to insufficient infrastructure to
transport and store natural gas for consumption and export, in
2020, Iraq flared 17.37 million cubic meters per day, according to
World Bank. To reduce flaring, the state-owned South Iraq
Company entered into an agreement with Royal Dutch Shell and
Mitsubishi in 2011 to form a new JV, Basrah Gas Company (BGC),
to treat and process flared gas produced within three large
southern oil fields, Rumaila, West Qurna 1 and Zubair. The 25-
year JV entails upgrading current facilities and building new
facilities and processing plants and is estimated to cost US$17
billion.

The processing capacity of natural gas from the BGC has tripled
since 2013, reaching an output of 1.4 billion f3/d (standard cubic
feet per day) in August 2020, as per the JV’s statement. Further
expansion of the processing capacity is planned. In May 2020, the
Deputy Minister of Oil Hamid Al-Zawbail announced that a plan
has been made to increase the output to 3.4 billion standard f3/d

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by 2023 in a statement to the semi-official newspaper.

Furthermore, in 2021, the country signed an agreement for a US$2

billion gas gathering project with TotalEnergies to process gas
from five southern oil fields.

Electricity

Iraq generates electricity from natural gas, liquid fuels and hydro
resources. It also relies on exports from Turkey and Iran to meet
the domestic demand for electricity. Similarly to the rest of the
region, Iraq has seen a steady increase in the domestic demand
for electric power in recent years. According to the reported
predictions, the peak demand is to reach 32.5GW (gigawatts) in
2030 from 11GW in 2015. The Iraqi Ministry of Electricity (MOE)
has ambitious plans to expand its electricity generating capacity to
meet rapidly increasing domestic consumption and to fuel
economic growth and diversification. In 2010, the MOE established
a 20-year Iraq electricity master plan to outline load forecasting,
generation, transmission and distribution planning. The expansion
is expected to be fuelled primarily by natural gas-powered
turbines. A major issue that Iraq has faced is the lack of natural
gas and, sometimes, water, to fuel its power plants. Most of the
produced natural gas in Iraq is flared. In order to bring natural gas
to new power plants, gas pipelines will also need to be
constructed.

Iraq recently approved Siemens over General Electric as a partner

in a US$15 billion agreement to develop power generation in the
country. The agreement entered into in 2019 builds on the
memorandum of understanding (MOU) signed between Iraq and
Siemens in October 2018.  

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The MOU introduced ‘the Roadmap for the Electrification of the

New Iraq’. The roadmap outlined the following eight objectives:

• reducing energy losses;

• introducing smart grids;

• strengthening the transmission grid;

• modernising existing power plants;

• adding new generation capacities in deprived areas;

• connecting Iraq to the Arab Gulf region;

• putting Iraq's national resources to work; and

• investing in its people.

The Siemens roadmap proposes adding up to 50 per cent of

current generating capacity.

Government policy

Does your country have an overarching policy regarding oil-

related activities or a general energy policy?

To meet the increasing domestic demand for energy and to extend

the country's export capacity, which is a major source of the
country's revenue, Iraq has implemented a long-term plan to
develop its energy infrastructure. The plan includes the
development of new and existing pipeline and road networks, as
well as a new port at Fao, which is set to be the country’s key
harbour.

The authorities are trying to encourage new technology investment

schemes and increased production capabilities. To achieve this,
the MOO has attracted investment from IOCs and foreign national

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oil companies and will require further investment to be made in the

oil and gas sector.

Registering a licence

Is there an official, publicly available register for licences and

licensees? Is there a register setting out oilfield ownership or
operatorship, etc?

A register of licences (ie, TSCs and DPSCs) and licensees is

maintained by the MOO. Generally, the register is not publicly
available, but the MOO usually publishes the results of oil licensing
rounds and will make project licences available upon reasonable
request. No fees are payable for accessing the register as a matter
of practice. The register is not electronic but is recorded in the
MOO’s computerised system. It sets out such information as
oilfield ownership and operatorship. In addition, the MOO often
publishes statics and oil-related data on its website on a monthly
basis.

The Ministry of Natural Resources (MNR) of KRG also publishes

data related to the licences along with the PSAs signed with explo‐
ration and production companies on its website.

Legal system

Describe the general legal system in your country.

The Iraqi legal system is civil and stems from the Egyptian system,
which itself is broadly based on the Napoleonic Code. The Iraqi
civil, commercial and criminal codes apply no religious provisions
(Shari'a).

In Iraq, all lawful property and contractual rights are enforced by

the judicial body, represented by the judicial courts and the

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Enforcement Directorate, which is affiliated with the Iraqi Ministry

of Justice. Domestic judgments are implemented by the
Enforcement Directorate, while foreign judgments are enforced in
accordance with the Law of Implementing Foreign Judgments No.
30 of 1928.

The UN Convention on the Recognition and Enforcement of

Foreign Arbitral Awards of 1958 (the New York Convention) was
endorsed by the Iraqi Cabinet on 6 February 2018. On 31 May
2021, a new law, the Law on the Accession of the Republic of Iraq
to the New York Convention (Law on Accession) entered into
effect, granting the New York Convention accession to the status
of enforceable law in Iraq. The Law on Accession has certain
reservations:

• the New York Convention's provisions are inapplicable in Iraq in

respect of awards rendered prior to Iraq's accession to the New
York Convention (ie, the New York Convention cannot be applied
in Iraq retrospectively);

• the New York Convention is inapplicable in respect of recognition

and enforceability of awards rendered in other member states to
the New York Convention if those member states do not recognise
and enforce awards rendered in Iraq (ie, there must be reciprocity
between Iraq and other nations); and

• the New York Convention is inapplicable in the Republic of Iraq

except in respect of disputes arising from the contractual and non-
contractual relations that are considered 'commercial' under Iraqi
law (ie, in Iraq, the New York Convention only applies to
'commercial' disputes).

Iraq is a signatory to a number of other international conventions

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for enforcement of foreign judgments, including:

• the Arab Convention on the Enforcement of Foreign Judgments

and Arbitral Awards of 1952;

• the Riyadh Convention on Judicial Cooperation of 1983;

• the Arab (Amman) Convention on Commercial Arbitration of 1987;

• the Geneva Protocol on Arbitration Clauses of 1923; and

• the International Convention on the Settlement of Investment

Disputes between States and Nationals of Other States (ICSID
Convention) of 1965.

The ICSID Convention entered into force in Iraq on 17 December

2015 following Iraq's signing of the ICSID Convention and
depositing its instrument of ratification on 17 November 2015 to
become the Convention's 160th signatory State. The ICSID
Convention is one of the key instruments of international law that
protects and promotes foreign investment. It established the
International Centre for Settlement of Investment Disputes
(ICSID), an international institution based in Washington DC that
administers and provides facilities for the conciliation and
arbitration of international investment disputes where one of the
parties to the dispute is an ICSID Convention state. Since entry
into force, five arbitrations have been registered with ICSID as
ongoing disputes.

In recent years, very few foreign awards have been successfully

enforced in Iraq despite the above treaties.

The Iraqi Civil Procedures Law No. 83 of 1969 (Civil Law) sets out
provisions governing arbitration based on Iraqi law. However, it
does not refer to the recognition or enforcement of international

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arbitral awards. Until now, most Iraqi legal experts have agreed
that as long as the law applicable to the resolution of the dispute is
Iraqi law and there is no conflict between any other procedural
laws and regulations applied with Iraqi procedure laws, a foreign
arbitral award could, in principle, be enforced in Iraq. Court
practice has permitted the suspension of litigation in contractual
disputes where there was an express arbitration clause and a plea
of arbitration was submitted at the first session.

With the accession of the New York Convention, attaining

recognition and enforcement of foreign arbitral awards should
become easier. However, the derogations from the New York
Convention set out above show that it may still not always be
straightforward. It remains to be seen how the implementation of
the new law translates into practice.

The Kurdistan Region of Iraq has a separate and independent

court and judicial system, but closely follows that of federal Iraq.
The Kurdish courts apply the laws of federal Iraq unless such laws
have been repealed, amended or replaced by the parliament of
Kurdistan.

Regulation overview

Legal framework for oil regulation

Describe the key laws and regulations that make up the

principal legal framework regulating oil and gas activities.

The legal framework governing oil and gas activities in Iraq is

based on the Iraqi Constitution of 2005 (Constitution), especially in
respect of encouraging local and international involvement with the
country's private sector. A number of additional laws regulate oil
activities, whether directly or indirectly, including the following (as

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may have been amended):

• Ministry of Oil Law No. 101 of 1976;

• Oil Products Import and Sale Law No. 9 of 2006;

• Private Investment in Oil Refining Law No. 64 of 2007;

• Oil Products Anti-Smuggling Law No. 41 of 2008;

• International Oil Companies Income Tax Law No. 19 of 2010;

• Law No. 84 of 1985 for Preservation and Protection of

Hydrocarbon Endowment;

• Law No. 27 of 2009 on the Protection and Improvement of the

Environment;

• Public Companies Law No. 22 of 1997;

• Investment Law No. 13 of 2006;

• Revolutionary Command Council Decision 273 of 2001 on the

Rights of Disposal and its Regulations;

• Provincial Law No. 21 of 2008;

• Taxation Instructions No. 5 of 2011 as amended by Instructions 2

of 2013;

• Council of Ministers Resolution No. 167 of 2010 (tax exemption);

• Law No. 70 of 1983 on Documents Preservation and its

Regulations;

• Government Contracts Regulations No. 2 of 2014;

• Iraqi National Oil Company Law No. 4 of 2018; and

• oil production fees legislation, including:

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• Law No. 9 of 1939;

• Resolution 82 of 1996; and

• Order 66 of 1999 issued by the Committee on Economic Affairs.

Expropriation of licensee interest

Are there any legislative provisions that allow for

expropriation of a licensee’s interest and, if so, under what
conditions?

Expropriation is prohibited by the Constitution unless carried out in

accordance with special conditions of Iraqi Expropriation Law No.
12 of 1981. Article 23 of the Constitution provides: ‘Expropriation is
not permissible except for the purposes of public benefit and in
exchange for fair compensation, and this shall be regulated by
law.’

In addition, article 12.3 of Investment Law No. 13 of 2006

(Investment Law) guarantees investors non-seizure and non-
nationalisation of their investment projects falling under the
Investment Law provisions in whole or in part, with the exception
of investment projects that are subject to court judgment
stipulating seizure or nationalisation of such project.

Bilateral investment treaties (BITs) signed between Iraq and other

countries also explicitly stipulate the prohibition of expropriation of
projects falling under the scope of a BIT. For the government to
expropriate a licensee’s interest, the government must:

• prove the existence of a public benefit resulting from the

expropriation;

• have judicial judgment rendered in respect of the intended expro‐

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priation; and

• allocate fair compensation to the investor.

Revocation or amendment of licences

May the government revoke or amend a licensee’s interest?

Revocation or amendment of a licensee’s interest is regulated by

the contractual conditions of each technical service contract and
development production service contract executed pursuant to
licensing rounds. The service contracts stipulate the
consequences in the case of a material breach of a licence term
and the process of surrendering acreage.

Regulators

Identify and describe the government regulatory and

oversight bodies principally responsible for regulating oil
exploration and production activities in your country. What
sanctions for breach may be imposed by the regulatory and
oversight bodies?

The Ministry of Oil of Iraq (MOO) has had central control and
oversight over oil and gas exploration, production and
development in Iraq. It has operated through the following Iraqi
national oil companies (noting their responsibilities):

• MOO Headquarters – oversees all the oil sector’s activities;

• Oil Products Distribution Company – distributes LPG and oil

products;

• North Oil Company – produces oil in Kirkuk, Nineveh, Erbil,

Baghdad, Diyala and part of Hilla and Kut;

• Midland Oil Company, Maysan Oil Company, Dhi Qar Oil Company

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and Basra Oil Company (formerly South Oil Company) – produce

oil in the rest of Iraq;

• North and South Gas Companies – utilise natural gas available in

Iraqi gas fields;

• Oil Pipelines Company – conducts pipeline transportation of crude

oil;

• Iraqi Oil Tankers Company – conducts marine transportation of

crude oil;

• Heavy Engineering Equipment State Company – provides heavy

equipment to the MOO companies;

• the State Organisation for Marketing of Oil (SOMO) – exports

crude oil from Iraq;

• Oil Exploration Company – conducts oil and gas exploration

activities;

• State Company of Oil Projects – approves project plans and

designs;

• Gas Filling Company – treats gas received from the North and
South Gas Companies;

• Iraqi Drilling Company – conducts well drilling, workover and

completion;

• South Refineries Company – conducts oil refining, oil products

processing and manufacturing;

• North Refineries Company – conducts oil refining, oil products

processing and manufacturing; and

• Midland Refineries Company – conducts oil refining, oil products

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processing and manufacturing.

However, under the new Iraqi National Oil Company (INOC) Law,
all rights and obligations of the MOO in relation to certain
companies from the above list are to be transferred to the INOC.
The concerned companies are as follows:

• Oil Exploration Company;

• Iraqi Drilling Company;

• North Oil Company;

• Midland Oil Company;

• Maysan Oil Company;

• Dhi Qar Oil Company;

• Basra Oil Company; and

• Iraqi Oil Tankers Company.

The SOMO was originally included in the above list but was
excluded from it following the the transfer of the SOMO to the
INOC, which was declared unconstitutional by the Federal
Supreme Court of Iraq.

The Kurdistan Regional Government's (KRG) Ministry of Natural

Resources (MNR) used to exert control and oversight over the
Kurdish region through the following public entities pursuant to the
Kurdistan Oil and Gas Law No. 22 of 2007 (KRG Law):

• Kurdistan National Oil Company;

• Kurdistan Oil Trust Organisation;

• Kurdistan Exploration and Production Company;

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• Kurdistan Organisation for Downstream Operations; and

• Kurdistan Oil Marketing Organisation.

However, on 15 February 2022, the Iraqi Federal Supreme Court

issued a decision in case 59/Federal/2019 and Unified
110/Federal/2019 that determined the KRG Law was
unconstitutional and decided that:

• the KRG Law violated articles 110, 112, 115, 121 and 180 of the
Constitution;

• the KRG must hand over all oil production from the oil fields in the
Kurdistan Region, and other areas from which oil has been
extracted by the KRG, to the Iraqi Federal Government
(represented by the MOO);

• the Iraqi Government will use its constitutional powers regarding

the exploration, production and export of crude oil from the
Kurdistan Region to manage oil production in the region going
forward;

• the MOO is permitted to pursue nullification of any contracts

entered into by the KRG with foreign states and companies for the
exploration, production, export and sale of crude oil from the
Kurdistan Region;

• the KRG must allow the MOO and the Federal Board of Supreme
Audit to review all oil contracts entered into by the KRG
concerning the export and sale of oil and gas for the purpose of
determining the financial benefits incurred by the KRG on those
contracts; and

• the Kurdistan Region's share of the national budget shall be

determined in such a way as to ensure the rights of Kurdistan

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citizens regarding the federal budget are delivered.

It remains to be seen what impact, if any, this decision will have

upon production sharing contracts entered into by the KRG and
international oil companies (IOCs). Whilst the Iraqi Federal
Supreme Court's decision allows the MOO to review and nullify
PSAs made by the KRG with IOCs under Iraqi law, many PSAs
are governed by English law and are subject to international
arbitration clauses, meaning that any attempt to nullify them may
give rise to extensive litigation.

With respect to sanctions for a breach that may be imposed by the

MOO or any of the above-listed state companies, such sanctions
are subject to the regulatory and contractual provisions governing
the relationship between the parties.

Government statistics

What government body maintains oil production, export and

import statistics?

Statistics on oil production, export and domestic consumption are

maintained by the MOO and are published on the MOO website on
a monthly basis. In addition, oil imports and exports are published
on the SOMO’s website and updated monthly. The KRG’s
MNR also publishes statistics pertaining to the Kurdistan Region in
monthly reports published on its website.

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