our visitors a happy, prosperous and peaceful New 2010, and hope they find these
periodical updates on the situation in Iraq a useful appraisal of recent important
political, legal, administrative and economic developments that provide a general
idea of the impact and effect on business potential in a country with vast business
1.1. The official figures recently
published of fatalities and terrorist attacks show a marked reduction during 2009.
This led to reported expectation of an improved overall security situation. However,
there still occurred during the past year fewer but major attacks on Government
offices such as the Ministry of Foreign Affairs, Finance and other vulnerable
sensitive locations. These latest attacks unfortunately indicate that even with
the reported improvement security is still considered fragile. This is coupled
with only a slight improvement of essential living conditions and amenities that
still remain inadequate.
1.2. It is hoped that the New Year with the scheduled
national General Elections, reported below, will lead to the election of a more
efficient, progressive and productive Parliament and Government that can achieve
progress in essential elements of security, political stability, elimination or
at least reduction of corruption, unemployment levels and improvement of services
that will lead to creating a safer and healthier business environment. Obviously
permanent and continued stability remains a critical obstacle to achieving economic
progress and development in the different sectors such as unemployment and shortages
of fundamental daily living requirements, health and medical care, water treatment
and purification and power supply. The lack of these essential aspects remain
and continue to be a destabilizing factor.
2. Elections and New Government
2.1. The sectarian and ethic representation continued during 2009
to hamper and accentuate the complex and slow political process. It is further
believed that these unfortunate divisions coupled with the lack of an overall
Iraqi national unity Government has had a major general detrimental effect on
all aspects of life in Iraq. One of the recent examples of this problem was the
haggling and delays to approve the new Election Law which was finally approved
by the Iraqi Parliament in early December 2009 after months of delay and nearly
a major constitutional crisis.
2.2. It is further hoped that the coming
elections that were scheduled initially for January 2010 but were delayed to,
hopefully, be beheld in March 2010 would result in the election of more efficient
and coherent Parliament that will overcome the presently persistent delays in
holding meetings due to frequently abused intentional absenteeism in Parliamentary
attendance creating a lack of the required quorum to hold sessions. It is further
hoped that new Parliament will not only improve the legislative process but will
be able as well as to accomplish the crucial selection of a nationally representative
Government necessary for the running of the country and tackling the major essential
problems of security, stability, political and economic normalization and progress.
2.3. Another important consequence of the above mentioned political diversity
was the delay in approving major legislation such as the recent continued failure
to approve the Budget. It was reported that this was linked to the approval of
the Parliamentary Procedures Law that the current Parliament intends to defer
to the new Parliament to be elected in March 2010.
3.1. In our previous update we mentioned the continued trend for economic
liberalization and the application of free market policies, the issue of the Iraq
Investment Law No. (13) of 2006 ("the Investment Law") and the promulgation by
the Regional Government of Kurdistan ("RGK") of the Investment Law for the Region
of Kurdistan ("the Region") No. (4) of 2006. However, while there has been a significant
influx of investment to the Region in the different economic sectors including
construction, oil, industry and services mainly because of the relative security
and stability in the Region, investment in other areas of Iraq, except for the
award of oil service contracts reported below, have remained generally deficient.
4. Oil & Gas
4.1. The important but controversial Iraqi Oil
and Gas law (also known as the National Hydrocarbon Law) ("the Oil Law") to regulate
the oil industry drafted by the Oil Ministry and approved by the Iraqi Counsel
of Ministers in March 2007, remains a draft and unapproved by the Parliament.
4.2. In spite of the failure to promulgate the Oil Law, the Ministry of
Oil recently announced that 10 service contracts were concluded with major and
other international oil companies on the basis of a per-barrel fee of oil produced.
These contracts were mainly agreed for areas in the southern and eastern regions
of Iraq with proven oil reserves such as Rumaila, Majnoun, Halfaya, West Qurna,
Gharaf, Zubair and other fields. Contracts were reported to have been awarded
to several consortia that include major international and national companies such
as BP, China's National Petroleum (CNPC) Malaysia's Petronas, Exxon Mobil, Shell,
Occidental, Eni, South Korea's Korea Gas Corporation (KOGAS), Russia's Lukoil,
Norway's Statoil ASA, Japan's Japex and others.
4.3. It was reported that
the Ministry of Oil expects Iraq's current production of around 2.4 M B/D to reach
11 M B/D within approximately 7 years. In addition to increased production it
was further reported that the service contracts will generate substantial revenue
of approximately $187 Billion that will be used in development projects. However,
it was also reported that this projected development of oil production and expected
revenue will obviously depend on overall stability in the country and improved
security without which such massive and costly operations will be very difficult
if not impossible to embark on.
4.4. The timing of the award of these contracts
at the end of 2009 a few months before the scheduled General Election could also
be a controversial issue, particularly when the Oil Law referred to in
above remains a draft that is not promulgated. These issues could be problematic
in the future especially if the sectarian and ethnic divisions remain.
It was also reported that the disagreement between the Central Government (Ministry
of Oil) and the RGK continued unresolved concerning the RGK award of oil and gas
concessions without the approval of the oil Ministry. The RGK continues to declare
that they are willing to have a serious dialogue to resolve the problem of the
division and sharing of revenue so that it could continue to develop its oil and
gas industry and increase its exports. It is currently reported that exports from
the Region have reached 100 thousand B/D that are produced by a consortia of companies
from 2 fields namely Taktak near Zakho by the leading Turkish company Gunel Energy,
and Tawke by the Norwegian DNO International ASA. This production is expected
to be increased to 200 thousand D/D during the current 2010. Exports from the
Region made through the Iraqi pipelines to Turkey were stopped when the argument
flared up again concerning the signing of oil concession before the approval of
the Oil Law and reaching an agreement between the Federal Government and KRG on
the payment mechanism of revenue generated in the Region. The resolution of this
dispute is considered essential for the development of the oil industry in the
4.6. The start of oil production in a new well in the Region of
Kurdistan in Khormala, South Erbil, of 50 thousand B/D for local consumption was
announced in July 2009. This is expected to be increased to 100 thousand B/D.
The Erbil 20 thousand B/D refinery to refine oil from the Khormala again mainly
for local consumption was inaugurated and announced in July 2009. This current
refinery capacity is expected to double to be expanded to 40 thousand B/D.
Difficulties Budget and Financing Projects
5.1. In spite of the
current oil production, the relatively high oil prices on world markets and the
receipt of an estimated revenue of $45 Billion, Iraq's finances continue to run
on deficit which was reported to be estimated at $19 Billion. This deficit is
expected to covered by State borrowing through the issue of bonds and international
loans. There will also have to a reduction and rationalization of public spending
and limitation of inflation as well as control of waste and corruption.
The suspension of vital projects that are essential for the normalization of the
living conditions in the country is an unfortunate result of the financial difficulties
for example the contracts for the improvement of electricity supplies that were
agreed with US and German companies that were suspended.
6.1. Iraq is a historically fertile area that used to be called land between
the two rivers and was until the discovery of oil an agricultural based economy
that used to export grains and foodstuff. However, agriculture was neglected and
suffered from numerous political problems in recent years that led to the its
deterioration leaving Iraq a net importer of practically all the essential grains,
food and provisions. To partly alleviate this problem it was recently reported
that the National Investment Board intends to offer 2 million acres of agricultural
land on long lease basis to foreign companies for direct foreign investment. The
amounts to be invested were estimated at $18 Billion for land reclamation and
use of modern production techniques. While apparently there is interest to invest
in these types of projects particularly in the Gulf, here again the security factor
remains an essential obstacle to implementing such investments.
The above update is a guideline not intended to be a legal opinion or advice.
For opinions and/or advice on developments or specific legal matters in Iraq,
kindly contact us by e-mail to email@example.com
for the advice required.
Update: December 2010
Update: December 2008
Update: August 2004
Update: October 2003
Update: Agency Law
Update: July 2003
Update on Agency Law: March 2001
Iraq Law latest update from Gulf Law December 2008