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اقرأ بالعربية

The Legal Framework for Oil and Gas in Iraq: Constitution, Service Contracts and the Kurdistan Region

Iraq still has no federal oil and gas law of the kind the 2005 Constitution anticipates. Upstream activity rests on constitutional principles, legislation from the 1960s to 1980s, contract models developed by the Ministry of Oil, and annual budget laws. In the Kurdistan Region, production-sharing contracts were concluded under a regional law that the Federal Supreme Court declared unconstitutional in 2022; the Kurdistan Regional Government rejected that ruling. This article outlines the framework and the position for foreign companies as of October 2026.

Othman Al-JubooriOthman Al-Juboori, Iraqi lawyer, expert in Iraqi labour lawIraqi lawyer, expert in Iraqi labour law Current as of October 2026

The constitutional basis

Two provisions of the 2005 Constitution are central:

  • Article 111 states that oil and gas are owned by all the people of Iraq in all the regions and governorates.
  • Article 112 provides that the federal government, with the producing governorates and regional governments, shall manage oil and gas extracted from present fields, with revenues distributed fairly in proportion to population, and that the federal and regional governments shall together formulate strategic policies to develop oil and gas wealth.

The Constitution does not define "present fields", and Article 112 contemplates regulation "by law". The federal oil and gas law intended to give effect to these articles has been drafted several times but has not been enacted. That gap underlies much of the legal uncertainty in the sector, especially in relations between the federal government and the Kurdistan Regional Government.

Legacy legislation still relied on

In federal Iraq, the legal basis for upstream contracts is drawn from a combination of older laws, including:

  • Law No. 97 of 1967, which allocated to the Iraq National Oil Company (INOC) exclusive rights to exploit oil and hydrocarbons in Iraqi territory, prohibited new concessions in those areas and required any partnership with other companies there to be authorised by law.
  • Law No. 84 of 1985 on the Preservation of Hydrocarbon Wealth, which aims to protect crude oil, associated and free gas and derivatives from damage and waste, and to require exploitation on sound technical and economic principles. It imposes operating obligations such as preventing waste and restricting flaring where gas can be used economically.
  • Laws on the organisation of the Ministry of Oil and the state oil companies, together with annual federal budget laws, which have often included provisions on oil revenues and exports.

A new INOC Law No. 4 of 2018 was enacted to re-establish the national oil company, but in January 2019 the Federal Supreme Court struck down a number of its provisions as unconstitutional, and the law has not operated as originally designed.

Oil and gas extraction and production are excluded from the general Investment Law No. 13 of 2006 (Article 29), so the incentives described in our investment article do not apply to upstream activity. Private investment in refining has its own statute, Law No. 64 of 2007, as amended.

Contract models in federal Iraq

Service contracts from the licensing rounds

Since 2009, the Ministry of Oil has awarded fields through competitive licensing rounds. The early rounds used technical service contracts (and development and production service contracts). Under these, the state retains ownership of the petroleum; the contractor, typically in partnership with a state oil company, recovers its costs and earns a fee per barrel of incremental production rather than an entitlement to the oil itself. Disputes under these contracts are generally governed by Iraqi law with international arbitration.

The 2024 rounds: a different economic model

In May 2024 the Ministry held the "Fifth Round Plus" and "Sixth" licensing rounds for 29 oil and gas projects. Reporting by Reuters and industry press indicates that the new contracts moved away from a fixed remuneration fee towards a model in which the contractor bids a share of net revenue or profit after cost recovery, sometimes described as a hybrid between service and production-sharing terms. Companies considering these terms should review the actual contract text rather than rely on labels.

Larger integrated agreements

The Ministry has also negotiated bespoke agreements outside the rounds, such as the Gas Growth Integrated Project in Basra with TotalEnergies, QatarEnergy and Basra Oil Company, which combines gas capture, oil, water and solar components. These show that terms are negotiated case by case.

The Kurdistan Region: Law No. 22 of 2007 and the 2022 ruling

In 2007 the Kurdistan Parliament enacted the Kurdistan Region Oil and Gas Law No. 22 of 2007, under which the Kurdistan Regional Government (KRG) concluded production-sharing contracts (PSCs) with international oil companies. Under a PSC, the contractor recovers costs from and shares in production, which differs fundamentally from the federal service model.

On 15 February 2022, the Federal Supreme Court, in Case No. 59/Federal/2012 (consolidated with 110/Federal/2019), held the Kurdistan law unconstitutional and void for conflict with several articles of the Constitution. The Court's published decision cites Articles 110, 111, 112, 115, 121 and 130. According to the published decision, the Court also:

  • obliged the KRG to hand over oil production from the Region and other areas from which it had extracted oil to the federal Ministry of Oil;
  • recognised the Ministry's right to pursue the invalidity of oil contracts concluded by the KRG with foreign states and companies; and
  • required the KRG to allow the Ministry and the Federal Board of Supreme Audit to review those contracts.

Under Article 94 of the Constitution and the Federal Supreme Court Law, the Court's decisions are final and binding. The KRG rejected the decision on the day it was issued: in an official statement it said that the ruling did not respect the Constitution, that Article 112 does not place oil and gas within the exclusive authority of the federal government, and that it would take constitutional, legal and judicial measures to protect contracts in the sector while seeking a constitutional solution with the federal government.

The ruling did not itself cancel individual contracts; annulment of a particular contract would require separate proceedings. Litigation before the ordinary courts has followed; in December 2024, press reports stated that the Karkh Court of Appeal in Baghdad dismissed the Ministry of Oil's case seeking to annul contracts with several companies operating in the Region. The status of a contract concluded by the KRG should be assessed contract by contract, with specific advice.

Exports through Turkey: halt and resumption

In separate arbitration proceedings brought by Iraq against Turkey under the Iraq-Turkey pipeline agreement, an ICC tribunal issued a final award on 13 February 2023. As reported, the tribunal found that Turkey had breached the agreement by transporting crude oil from the Kurdistan Region without the instructions of the Iraqi federal government, Turkey's counterparty under the agreement. Exports through the pipeline to Ceyhan stopped in late March 2023.

Exports resumed on 27 September 2025 under an interim arrangement among the federal Ministry of Oil, the KRG Ministry of Natural Resources and oil companies operating in the Region, with marketing through the state marketing company SOMO. The long-standing Iraq-Turkey pipeline agreement expired in July 2026; on 1 August 2026 the two governments' state companies signed a one-year transit arrangement while a longer-term agreement is negotiated, and industry press reported in August 2026 that the tripartite arrangement had been renewed until 27 January 2027. These arrangements are short-term and could change.

Workforce and labour law

The technical service contract template requires contractors and operators, and their subcontractors, to employ qualified Iraqis to the maximum extent possible and to fund training (Article 26). Foreign specialists need work permits under Instructions No. 1 of 2026 (Official Gazette No. 4863), which, in technical projects, require foreign workers to undertake to train Iraqi staff (Article 11); in the Kurdistan Region, Council of Ministers Decree No. 172 of 2022 requires at least 75% local staff. In 2024 the Council of Ministers decided that private-sector companies and companies contracted with the Ministry of Oil must employ at least 80% Iraqi staff, and the Ministry of Labour has stated that it applies this 80/20 ratio (INA, 3 December 2025; 964media, 28 September 2026); we have not seen the published text of the Cabinet decision, which practitioners cite as Decision No. 24832 of 2024. The ratio to plan on is no more than one foreign worker for every four Iraqi workers. Under Social Security Law No. 18 of 2023, private and mixed-sector employers whose profits come from selling oil and other hydrocarbons produced in and exported from Iraq pay a 25% employer contribution instead of 12%, and for foreign workers the employer also bears the State's 8% share; whether a fee-based service contractor falls within the 25% category should be checked. See our articles on work permits for foreign workers and social security for employers, and our labour law page.

What this means for foreign companies

  1. Identify the counterparty and legal basis. A contract with a federal state oil company and one concluded in the Kurdistan Region rest on different legal foundations.
  2. Read the fiscal terms in the contract. Labels such as "service" or "profit-sharing" are less important than cost-recovery rules, fee or share mechanics, and payment routes.
  3. Allow for changes in the law. A future federal oil law, budget provisions or court rulings may affect existing terms; stabilisation and renegotiation clauses matter.
  4. Plan for tax and local requirements. Foreign oil companies and their subcontractors are subject to a 35% income tax on income from oil and gas contracts under Law No. 19 of 2010, and Iraqi staffing expectations are high (see the contractor article and our labour-law series).

Frequently Asked Questions

Does Iraq have a national oil and gas law?

Not in the sense contemplated by Article 112. Draft laws have been prepared but not enacted. The sector relies on the Constitution, older legislation, contracts and budget laws.

Are production-sharing contracts used in federal Iraq?

The licensing rounds historically used service contracts. The 2024 rounds introduced a profit-share element, but ownership of petroleum remains with the state under the constitutional framework.

Did the 2022 ruling cancel KRG contracts automatically?

No. According to the published decision, the Court declared the regional law unconstitutional and recognised the Ministry of Oil's right to seek the annulment of contracts concluded by the KRG, which would require separate proceedings. The KRG has rejected the ruling and stated that it will protect existing contracts. Outcomes of later court cases have varied, so the position should be checked for each contract.

Sources

This article is general information, not legal advice.