Legal Status Of Iraqi Oil And Gas Reserves Prior To Selfgovernance

As indicated in the Prologue, Iraq has substantial proven oil and gas reserves, and the estimates of reserves yet unknown are equally as staggering. No one would question the Iraqi government's total, complete, and absolute autonomy and control over those reserves in the years between the 1961 nationalization and the period immediately prior to Gulf War I in 1990-1991. Even in the three decades preceding nationalization, a period controlled by oil and gas concessions granted to IPC and its subsidiaries and affiliates, few would question the ultimate sovereignty of Iraq over its natural resource patrimony. What is of concern in this section of Chapter 1, however, is the effect that was produced on the Iraqi government's autonomy and control over its oil and gas reserves by

123 See id. discussing capacity at the four refineries.

124 See id.

125 See id.

126 See id.

the various UN Security Council resolutions adopted in connection with and after Gulf War I - including those establishing the economic sanctions against Iraq, creating the UN oil-for-food program, and setting up the Development Fund for Iraq (DFI) to be supplied by monies from sales of Iraqi oil and gas - as well as by those adopted during the time between Gulf War II and the recognition of Iraqi self-governance in summer 2004. Conceivably, it might be maintained that the assertions of authority found in those internationally binding legal pronouncements of the Security Council altered the juridical landscape so as to divest Iraq of legitimate power over its own oil and gas and transfer it to the international community acting as a trustee or fiduciary for the benefit of Iraq itself. As will be explained hereafter, any such understanding of the pertinent Security Council resolutions would be mistaken.

Prior to taking up those particular resolutions, one would do well to keep in mind that, between the Gulf War I resolutions of the Security Council and the resolutions adopted in the wake of Gulf War II, Iraq fell for a time under the control of the U.S.-led coalition occupying military forces. And immediately thereafter, given the lack of any extant indigenous governing structure, Iraq had little choice but to submit to the will of the U.S.-appointed, and UN-endorsed, Coalition Provisional Authority (CPA).127 As will be observed later in Chapter 8, no debate exists about the fact that prevailing principles of international law governing occupying military forces forbid, as a general matter and subject to exception only in cases of genuine necessity, changes in the legal system of an occupied territory.128 In full recognition of the puissance of this basic and fundamental notion, at least in regard to the Iraqi oil and gas industry and its resources, legal pronouncements of the CPA made clear that it was in no way acting to alter, modify, or impair the nature of the applicable legal regime.129 In fact, when the Iraqi Constitution was adopted in 2005, the year after the CPA relinquished authority to the Iraqis, it contained a provision, article 130, specifically providing that laws existing at the time ofthe Constitution's adoption would remain in force in the absence of annulment or amendment.130 This

127 For UN recognition of the CPA, see both UN Security Council resolution 1483 (22 May 2003), UN Doc. S/Res/1483, available at http://daccess-ods.un.org/doc/UNDOC/GEN/No3/ 368/53/PDF/N0336853.pdf?OpenElement (accessed June 20, 2008)(thirteenth para. of Preamble "recognize[es] the specific authorities, responsibilities, and obligations under applicable international law of... states [in Iraq] as occupying powers under unified command (Authority)," and then para 4 of the resolution's substantive provisions "[c]alls upon the Authority, consistent with the Charter... and other relevant international law, to promote the welfare of the Iraqi people"), and resolution 1511 (Oct. 16, 2003), available at http://daccess-ods.un.org/ doc/UNDOC/GEN/No3/563/91/PDF/N0356391.pdf ?OpenElement (accessed June 20,2008) (substantive para. 1 "underscore[ing].. .the temporary nature of the exercise by the Coalition Provisional Authority (Authority) of the specific responsibilities, authorities, and obligations under applicable international law recognized and set forth in resolution 1483 (2003)").

128 See Chapter 8, text accompanying notes 45-46.

129 See id., text accompanying notes 73-75.

130 See Iraqi Constitution at art. 130, available at www.export.gov/iraq/pdf/iraqi_constitution.pdf (accessed May 5, 2008).

would clearly seem to confirm the intent, among other things, to leave unaffected the status of preexistent oil and gas law.

If focus is shifted to the UN Security Council resolutions adopted in connection with Gulf War I, it would seem that exactly the same thing could be said. Three resolutions in particular are relevant - resolutions 661, 687, and 986 - yet none of them, or any of the other associated resolutions, attempted to change the legal regime that found Iraqi oil and gas under the control of Iraqis during the years intervening between the First and Second Gulf Wars. It clearly came to pass that the consequence of Gulf War I was the resounding defeat of the military forces of Saddam Hussein, their unceremonious removal from Kuwait, and the imposition of a multiyear UN regime of economic sanctions against Iraq. In no way, however, did any of these events individually or collectively, or the Security Council resolutions adopted in connection with them, remove legal authority over Iraqi oil and gas from the hands of the Iraqi people and its government. As will be observed momentarily, the UN economic sanctions may have served to limit the latitude of Iraq with respect to dealings concerning its oil and gas resources, but the sanctions neither sought nor accomplished the divestment of Iraqi title authority or ownership over the nation's resources. Iraqi oil and gas remained the patrimony of Iraq, but exports and sales of those resources were subjected to regulation by the international community.

Resolution 661, adopted following Iraq's invasion of Kuwait in summer 1990, initiated the process of regulation without any divestment of Iraqi ownership or authority over its oil and gas resources.131 Paragraph 3(a) of that resolution evidenced this by providing that, with the resolution's adoption, the Security Council "decides that all States shall prevent.. . [t]he import into their territories of all commodities and products originating in Iraq. .. exported therefrom after the date of the present resolution."132 The effect was to outlaw UN member states from importing Iraqi oil and gas. In regard to earlier efforts to eliminate the former apartheid regime in South Africa and accomplish other objectives in connection with other sensitive international problems elsewhere around the globe, trade sanctions had previously been used by the United Nations. As in so many of the other cases, though, nothing in resolution 661 attempted to wrest ownership or title authority from Iraq of legal right to its natural resources. Paragraph 6 of the resolution did establish a "Committee" to oversee compliance with the resolution's dictates,133 but in doing so did not signify that ultimate legal power over Iraqi oil and gas transferred to the Committee itself.

With the coalition's removal of Iraqi forces from Kuwait and the defeat of Saddam's military henchmen in spring 1991, Security Council resolution 687

131 See the text of Security Council resolution 661 (Aug. 6, 1990), available at www.iraqwatch.org/

unscresolutions/s-res-661 htm (accessed Nov. 28, 2006).

was adopted.134 As with resolution 661, it had no effect on Iraqi ownership or title authority over its hydrocarbon resources. In addressing those resources, and a variety of other significant matters such as inspections regarding weapons of mass destruction (WMD) and return to Kuwait of looted items, however, resolution 687 did contain two important provisions. The first, paragraph 19, indicated that a UN Compensation Commission was being established to address the issue of Iraq liability for war-related claims, and that such claims should be paid by sales for "export[] of petroleum and petroleum products from Iraq."135 The second provision, paragraph 22, picked up on this theme of loosening of the earlier embargo on exports of Iraqi oil and gas and provided that, at some point ideally in the near future, Iraq would meet all of its UN-imposed obligations -and especially those related to WMD inspections - thereby permitting the lifting of the trade sanctions and resumption of oil and gas exports. The paragraph's precise words were that Iraqi compliance with its obligations would lead to a situation where "the prohibitions against the import of commodities and products originating in Iraq. . . contained in resolution 661 (1990) shall have no further force or effect."136 Again, although evidence of regulatory intent exists, nothing in either paragraph suggests Iraqi loss of ultimate ownership or title authority over its oil and gas resources.

During the 4 years intervening between the adoption of resolution 687 and the Security Council's 1996 action in adopting resolution 986, the world community tried on a couple of occasions to maneuver Iraq into a position where it would endorse an international legal regime that would trade a permission to resume limited oil and gas exports in return for a commitment to dedicate sales revenues to food, medicine, and humanitarian needs, as well as compensation for Gulf War I claims. The impetus for this was the growing humanitarian crisis brought on in Iraq by the effect of the embargo imposed by resolution 661, and the ineptitude of the Saddam Hussein government. Two important early illustrations of such efforts were Security Council resolutions 706 and 712, both adopted in mid-1991. Resolution 706 speaks, in the ninth paragraph of the Preamble, of monies needed to fund the humanitarian and compensation demands coming from sales of Iraqi petroleum and petroleum products.137 Obviously, this would have necessitated the removal of the extant embargo. Paragraph 1 of the substantive provisions of the resolution then declared the Council's willingness, assuming Iraqi consent, to permit resumption of limited sales to generate revenue for humanitarian and compensation needs.138

134 See the text of Security Council resolution 687, available at www.iraqwatch.org/unscresolutions/ s-res-687 htm (accessed Nov. 30, 2006).

137 See Security Council resolution 706 at ninth para. of Preamble, available at www.iraqwatch.org/ un/unscresolutions/s-res-706.htm (accessed Dec. 4, 2006).

Although it is true that paragraph 1(b) envisioned the use of an escrow account to ensure that sales revenues were utilized in a manner consistent with the resolution's overall objectives,139 the very fact the UN was sensitive to the need for Iraqi consent for such a program indicates cognizance of Iraqi ownership or title authority over its own oil and gas. Unfortunately for the Iraqi people, the Iraqi government was not prepared, at that date, to accede to either resolution 706 or 712.140 With the adoption of resolution 986 nearly half a decade later, sales of Iraqi oil and gas on a limited basis did eventually resume.

But even with the resumption of Iraqi hydrocarbon export sales on a limited basis under the oil-for-food program, nothing changed regarding the ownership or title authority over Iraq's oil and gas resources. Nothing appears in the language of Security Council resolution 986 to suggest effective assertion by the UN of legal supremacy over title to Iraq's oil and natural gas patrimony.141 When the terms of the resolution are examined in conjunction with the mid-1996 Memorandum of Understanding (MOU) worked out between the Secretary General and the government of Iraq, the operative instrument actually initiating export sales, it is clear that the Security Council remained committed to the notion that Iraq's hydrocarbon resources belonged to Iraqis and that the UN was prepared to go no farther than regulating how those resources, and the revenues from their sale, were utilized. This is evident in the fact that paragraph 1 of 986 simply lifted the embargo, subjected sales to oversight by a committee of Security Council members, and called for proceeds from sales to be held in an escrow account.142 Paragraph 7 then did nothing but subject that account to independent audit, with reports to be made by the Secretary General to the Iraqi government about the status of and activity in the account.143 The follow-on paragraph 8 added to this by merely insisting that the escrow funds be used for identified purposes, especially the humanitarian needs of the Iraqi people.144 Paragraphs 14 and 15 just insulated Iraqi petroleum and petroleum products from legal action until title passed to a purchaser and bestowed upon the escrow account the same privileges and immunities accorded the UN.145 The insulation from legal action until title passes to a purchaser plainly acknowledges Iraqi, and not UN, control over ownership.146 This theme is reiterated in the MOU

140 See Security Council resolution 712, available at www.iraqwatch.org/un/unscresolutions/ s-res-712 htm (accessed Dec. 4, 2006). On the Iraqi rejection of these proposals, see UN Office of the Iraq Programme: Oil for Food - Origins (7 Dec. 2006), available at www.un.org/Depts/ oip/background/index html (accessed Dec. 7, 2006).

141 See Security Council resolution 986, available at www.iraqwatch.org/un/unscresolutions/s-res-986.htm (accessed Dec. 1, 2006).

146 This matter is taken up in Chapter 7 in connection with creditor claims against Iraqi hydrocarbons and the revenues from its sales.

implementing and fleshing out the various paragraphs of the resolution, and in particular in paragraphs 1-5 of the MOU's Annex II, which clearly look toward the Iraqi government or its state oil marketing organization (SOMO) having the final say regarding endorsement of all oil and gas purchase contracts and associated documents.147 Had the UN entertained the notion that it, and not the government of Iraq, exercised or would in the future exercise ownership or title authority over Iraqi hydrocarbons, it would seem such a concession to Iraqi contract approval would never have appeared in the language of the MOU.

The two central Security Council resolutions adopted in the period between the commencement of Gulf War II and the CPA's turnover of governmental authority in summer 2004 to the Iraqis took precisely the same kind of approach. Both resolutions asserted UN regulatory control over export trade in Iraqi hydrocarbon resources, the aim being to restrict Iraq to generating revenue for the humanitarian needs of its people, but neither undermined the idea of exclusive Iraqi ownership or title authority over the nation's hydrocarbon resources. The first, resolution 1483, was adopted in late May 2003,148 within weeks of the removal of Saddam from power. The various substantive provisions of the resolution addressed many issues, from the obligations of the occupying coalition military forces to the objective of having the Iraqi people determine their own political destiny as quickly as possible and the task of the CPA in assisting the establishment of a transitional governing structure.149 With respect to the sales of petroleum and petroleum products, the revenues that had been generated by such over the intervening more than half-dozen years, and the legal protection that the UN had, extending back to resolution 986, accorded the revenues and the oil and gas resources of Iraq, resolution 1483 acted to give effect to the reality that had drastically changed with the downfall of Saddam Hussein. As will be discussed at great length in Chapter 7, oil and gas revenues and the natural resources themselves were provided legal protection.150 The so-called Development Fund for Iraq (DFI) and the International Advisory and Monitoring Board (IAMB) were established and charged with the responsibility of overseeing what would now be free and unlimited sales of Iraqi oil and gas and subsequent disbursements of revenues for the benefit of the Iraqi people, with the exception of 5% to be used to pay war claims.151 And the Secretary General was charged with the task of transferring all accumulated oil-for-food

147 See the specifics of the MOU in Letter Dated 20 May 1996 from the Secretary-General Addressed to the President of the Security Council, UN Doc. S/1996/356, available at http://daccessdds.un.org/doc/UNDOC/GEN/N96/127/71/PDF/N9612771.pdfPOpenEle-ment (accessed Dec. 6, 2006).

148 See Security Council resolution 1483 (22 May 2003), available at http://daccess-ods.un.org/ doc/UNDOC/GEN/No3/368/53/PDF/N0336853.pdf?OpenElement (accessed June 24, 2008).

program money to DFI itself.152 Nowhere in the substantive provisions of the resolution was anything suggested that would derogate from the idea of Iraqi ownership and title authority over the nation's hydrocarbons. In fact, quite to the contrary, the fourth paragraph of the resolution's Preamble spoke directly to the matter of Iraqi legal power over its hydrocarbon resources by "[s]tressing the right of the Iraqi people freely to determine their own political future and control their own natural resources.. .. "153

In mid-October 2003, the Security Council adopted the second of the two central post-Gulf War II resolutions that predated the ascendancy of Iraqi self-governance and offered insight on the then-extant legal status of Iraqi oil and gas - resolution 1511.154 Again, as with its predecessor 1483, resolution 1511 addressed a variety of matters, but most importantly the matter of quick restoration of governing authority by the CPA to the Iraqi people. Paragraph 1 of the resolution indicated plainly that by the adoption of the resolution the Security Council "[r]eaffirms the sovereignty and territorial integrity of Iraq, and underscores, in that context, the temporary nature of the exercise by the Coalition Provisional Authority (Authority) of the specific responsibilities, authorities, and obligations under applicable international law recognized and set forth in resolution 1483 (2003)."155 Aside from this important objective, the Security Council used the resolution to once again hold forth on the question of ownership or title authority over Iraq's oil and gas resources. As in the fourth paragraph of resolution 1483's Preamble, the second paragraph of resolution 1511's Preamble not only "[u]nderscore[d] that the sovereignty of Iraq resides in the State of Iraq, [but also] reaffirm[ed] the right of the Iraqi people freely to determine their own political future and control their own natural resources... . "156 From such language, it seems indubitable that the United Nations intended to reaffirm its full and complete recognition that the legal status of Iraqi hydrocarbons was one of ownership by Iraq. The removal of Saddam from power minimized -rather than eliminated - the apprehension of the world community regarding how Iraqi oil and gas resources would be used. After all, the country had a paucity of experience with democratic self-governance. This accounts, as will be seen in future, for the guarded nature of the Security Council's approach to according Iraqis unsupervised latitude in dealing with their oil and gas resources and the revenues generated by the sale of such. Yet this differs not at all from the long-prevailing utilization by the Security Council of the distinction between regulatory control, exercised by the UN, and ownership or title authority over the nation's oil and gas, retained by the Iraqis themselves.

153 See id. at fourth para. of Preamble.

154 See Security Council resolution 1511 (Oct. 16, 2003), available at http://daccess-ods.un.org/ doc/UNDOC/GEN/No3/563/91/PDF/N0356391.pdf?OpenElement (accessed June 25,2008).

156 See id. at second para. of Preamble.

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