As its sectarian civil war winds down and the United States continues to reduce its military role, what are the Kurdistan Regional Government's (KRG) immediate and long-term economic opportunities and prospects?¹ Ninety-five percent of the Iraqi budget — 13 percent of which goes to the KRG — literally flows from oil, thus making Iraq and the KRG classical rentier states. Thus, the main economic question for the KRG involves the still-unanswered question of the disposition of Iraq's oil resources. Ashti A. Hawrami, the KRG Minister for Natural Resources and a well-known former international oil executive, addressed this issue in a wide-ranging interview in the KRG capital of Arbil on June 14, 2006.² His arguments remain pertinent today. Dr. Hawrami strongly maintained that Article 115 of the new Iraqi constitution "states the supremacy of regional laws over federal laws, and can be invoked if no agreement is reached on the management of oil and gas resources and the distribution of proceeds." He also argued that Article 112 only permits the Iraqi government "an administrative role confined to the handling, i.e. exporting and marketing, of the extracted oil and gas from existing producing fields.... The elected authorities of the regions and producing governorates are now entitled to administer and supervise the extraction process; in other words local oilfield managers are answerable to the local authorities." Hawrami went on to argue that, since the new constitution was silent on undeveloped fields or any new fields, "the regions and governorates will have all the controls." Although he stated that the KRG and the government in Baghdad would be able to cooperate, heated verbal conflict over the issue of natural resources continues.

Since the Hawrami interview, several apparent compromises on a hydrocarbons law have fallen through. In June 2009, for example, the KRG actually signed several contracts with foreign companies to extract oil from the Taq Taq and Tawke fields in the KRG region, including one with Norway's DNO as well as Canada's Addax Petroleum (acquired by China Petrochemical) and Turkey's Genel Enerji International.³ At the time, this development was hailed as an important breakthrough for KRG-Iraq relations, as the Kurds said they could produce 200,000 barrels per day (b/d) by the end of 2010, about 10 percent of Iraq's current output and up from a maximum of 100,000 b/d the previous year. However, the deals fell through over who should pay the foreign oil firms that were developing fields in the KRG region. Nouri al-Maliki's government in Baghdad labeled them illicit and declared that the KRG would pay the firms from its percentage of the annual national budget. The KRG declined to go along with this interpretation. In October 2009, the Kurds suspended exports, and the KRG's output subsequently slumped to 20,000 b/d.

In February 2010, however, the KRG and Baghdad finally agreed to resume production and exports, but without an agreement on production-sharing contracts. Crude production from oilfields in Iraqi Kurdistan was announced at 80,000 b/d, with 50,000 b/d being exported and the rest used for domestic purposes. Production was expected to ramp up quickly to 100,000 b/d.⁴ However, the fate of the earlier disputed deals between the KRG and foreign companies remained unclear. Hussain al-Shahristani, the former Iraqi oil minister and the Kurds' nemesis in this situation, claimed that the resumption of oil exports had no connection with finding a solution to the problem of the earlier KRG contracts.⁵ In other words, the larger impasse remained.