The ICSID Convention entered into force in Iraq on 17 December 2015. This comes after Iraq signed the ICSID Convention and deposited its instrument of ratification on 17 November 2015 to become the Convention's 160th signatory State.
In a climate of on-going challenges facing investments into Iraq, this is a significant step forward in the legal context by the Iraqi Federal Government which has been seeking to attract foreign investment to help stabilise, rebuild and diversify the country's economy. Despite the country's significant security challenges in addition to the financial impact of declining world oil prices, Iraq remains an important market for international investment given that it has the world’s fifth largest proven oil reserves and needs reconstruction and infrastructure development on a massive scale.
The immediate impact of this step on the investment climate in Iraq is likely to be relatively limited given the small number of bilateral and multilateral investment treaties to which Iraq is party to and that are currently in force. However, this may signal a shift of approach and appetite as to how quickly Iraq wants to improve its legal framework for investment protection. This step is expected to be followed by the further ratification of bilateral and multilateral investment treaties and international conventions.
These are challenging times for Iraq. The Islamic State or ISIS controls thousands of square miles of territory and major Iraqi cities such as Mosul, Tikrit and Falluja. While leading the offensive against ISIS and enjoying the support of international allies, the Kurdistan Region of Iraq is seeking to secure contracts with international energy companies and export oil in order to boost its strained economy, a situation exacerbated by the cost of supporting refugees from the fighting in Syria and northern Iraq, as well as unpaid revenues owed by the Federal Government of Iraq (FGI).
In mid-November, the FGI and the Kurdistan Regional Government (KRG) announced a deal to ease tensions over Kurdish oil exports and payments from Baghdad. Under the deal, which lasts for one month only, the KRG is to provide the FGI with 150,000 barrels of oil per day in exchange for US$500 million in immediate cash payments. This was paid in two instalments last week. The 150,000 barrels of oil per day represents about half of the KRG’s export capacity, the remainder of which is still being shipped independently. The deal was reached after talks between Iraqi Oil Minister Adil Abdul Mahdi and Kurdish Prime Minister Nechirvan Barzani. At the Atlantic Council summit in Istanbul, the oil ministers of the KRG and FGI welcomed the deal as the first step in a broader effort to bridge differences over hydrocarbons. Notably, Oil Minister Abdul Mahdi appeared to acknowledge that federal legislation for petroleum might have to provide for a decentralised system, striking a tone very different from that of his predecessor.
A bilateral investment agreement or treaty (BIT) between Japan and Iraq was signed on 7th June 2012. This is the first BIT between Iraq and a major economy and is a significant and credible commitment by Iraq to the rights of foreign investors falling within the BIT’s protections. The BIT will enter into force 30 days after diplomatic notes are exchanged between the two governments confirming necessary national legal steps have taken place.