SULAIMANI, Kurdistan Region - Foreign investors could hold the Iraqi federal government “liable” for contracts signed between the Kurdish government and international oil operators if contractors suffer from substantial harm as a result of a court ruling against the Kurdistan Region’s oil industry, a senior lawyer told Rudaw last week.
In an interview with Rudaw conducted on July 28, Jeffrey M. Sullivan, Queen’s Counsel and partner in the London office of law firm Gibson Dunn said Iraqi Federal Supreme Court’s decision deeming the Kurdish oil and gas law “unconstitutional” could trigger investment arbitration claims.
“Iraq has entered into international treaties that provide protection for foreign investors and those investors, therefore, have the right to seek redress in international arbitration,” Sullivan said, noting that the Iraqi government could be “held liable” for the contracts signed by the Kurdistan Regional Government (KRG).
“There are contractor relationships with the KRG which tend to be governed by English law and the federal government of Iraq could also be held liable under those contracts,” he added.
The Iraqi Supreme Court in February found the Kurdistan Region’s oil and gas law to be “unconstitutional,” therefore striking down the legal basis for the independence of the Region’s oil and gas sector.
The KRG responded to the decision, saying that the court’s ruling is not only “unconstitutional” but also “unjust.”
“There are two different legal avenues for the oil investors,” said Sullivan, the first is “investment arbitrations, based on the international treaties Iraq has entered to which provide protection for foreign investors” and the second is “arbitration based on contractual relationships with the KRG which are governed by the English law.”
Sullivan said “there are principles under the English law which could allow investors to hold the federal government of Iraq liable, even though the contracts are signed with the KRG,” referring to the last year ruling by an English court that “effectively said that the Iraqi government could be held liable for the petroleum contracts with the KRG.”
“There was a dispute before an English court in respect of a contract between an investor and the KRG and the English court ruled that the KRG has effectively acting under the sovereign power of the federal government of Iraq,” said Sullivan. “What that means is that there is a possibility in the English law that the government of Iraq could be held liable under these contracts.”
Disputes arose between Baghdad and Erbil in early 2014, when Baghdad cut the Region’s share of the federal budget, setting into motion a series of crises that the KRG still suffers from. By March 2014, the KRG started exporting its oil abroad in an attempt to secure the salaries of its employees.
The Iraqi and Kurdish governments were once again brought around the table in 2021 when Iraq was drafting its budget law. Both sides agreed that the KRG would continue its oil sales and would hand the revenue of 250,000 barrels of oil to Baghdad daily.
There are 52 oil blocks in the Kurdistan Region, 16 of them are in production, and 15 are in exploration phases. Over 30 international and local companies are working in the sector. The Region produces around 450,000 barrels per day.
The KRG last year pocketed a net of almost $4 billion in selling oil.
