Kurdistan has attracted significant foreign investment in oil and gas since the mid-2000s. Much of that investment was built on the Kurdistan Regional Government’s own Oil and Gas Law. The legal position of that law, and of the contracts signed under it, has changed significantly in recent years. Foreign companies active in Kurdistan’s energy sector need to understand both the law itself and the disputes surrounding it.
Legal Framework
The Oil and Gas Law of the Kurdistan Region No. 22 of 2007 was enacted by the Kurdistan Parliament to regulate petroleum operations in Kurdistan. It sets the rules for awarding and managing oil and gas contracts, and gives the regional authorities powers over petroleum activities in Kurdistan. Under it, the KRG signed many contracts with international oil companies, mostly production sharing contracts.
Federal Iraq does not have a federal oil and gas law in force. The relationship between the federal government and Kurdistan over oil has been the subject of long-running disputes. In 2022, the Federal Supreme Court ruled the KRG Oil and Gas Law unconstitutional. This ruling, and the arrangements that followed, now shape how the sector operates.
Key Points for Foreign Companies
Production Sharing Contracts
Most contracts signed under the law are production sharing contracts. Under this model, the contractor bears costs and risk and receives a share of production. This differs from the technical service contracts used in federal Iraq, where contractors are paid a fee. The model affects cost recovery, revenue and tax treatment.
Regional Authorities
The law gave the KRG’s Ministry of Natural Resources and a regional oil and gas council central roles in managing the sector. These bodies negotiated and signed contracts with foreign companies. Following the 2022 ruling, the federal authorities have sought a greater role in Kurdistan’s oil sector.
The Federal Supreme Court Ruling
The Federal Supreme Court found the law inconsistent with the Iraqi Constitution. The ruling raised questions about the validity of contracts signed under it and the handling of oil revenues. Subsequent court decisions and negotiations between Baghdad and Erbil have continued to develop the position.
Exports and Payments
Oil exports from Kurdistan were halted in 2023 following an international arbitration decision on exports through Turkey. Since then, the federal and regional governments have worked on arrangements for exports, marketing and payments to producers. Foreign companies should track these arrangements closely, as they directly affect revenue.
Contract Review and Amendment
Some companies have faced pressure to amend their contracts to align with the federal framework. Changes may affect the economics of a project, including the contract model and cost recovery. Any amendment should be reviewed carefully against the company’s rights and financing obligations.
Dispute Resolution
Many KRG contracts contain international arbitration clauses. Companies should review their dispute resolution rights and any stabilisation clauses. These provisions may be important in protecting their investment during periods of legal change.
Practical Recommendations
- Review existing contracts against the current federal and regional legal position.
- Monitor court decisions and agreements between Baghdad and Erbil on oil.
- Assess the impact of export and payment arrangements on cash flow.
- Seek advice before agreeing to any contract amendment.
- Check your arbitration and stabilisation rights under each contract.
Conclusion
The KRG Oil and Gas Law built Kurdistan’s oil industry, but its legal status is now contested. Foreign companies operating in Kurdistan should follow developments closely and manage their contracts actively. Specialist advice is essential in this changing environment.
This article provides general information only and does not constitute legal advice. For advice on oil and gas in Kurdistan, contact Etihad Law team.