Iraq: Oil revenue sharing

Iraq, home to the world’s fourth-largest proven crude oil reserves, is a major producer of oil and natural gas. In 2021, oil accounted for 93% of government revenues, making the economy highly dependent on oil income.

Petrodollar allocations were introduced in 2010 as a mechanism to distribute a portion of oil and gas revenues to producing provinces for development and environmental compensation. Initially, Article 43 of the 2010 Federal Budget Law allocated USD 1 per barrel of oil produced, an amount that was later increased to USD 5 per barrel under a 2013 amendment to Law No. 21 of 2008. In 2021, the budget law introduced a revised formula, allocating 5% of oil and gas revenues to producing provinces. However, this provision was blocked by the Federal Supreme Court due to concerns over budget deficits.

Additionally, the 2021 Budget Law established a Petrodollar Fund, managed by provincial governors and financed through oil price differentials. This fund was also annulled by the Supreme Court, further complicating revenue-sharing efforts. Despite these policy changes, EITI reporting indicates that actual allocations often fall short, with revenue-sharing formulas fluctuating based on annual budget laws. The EITI reporting covering the 2021 fiscal year did not provide new information on the petrodollar transfers. This analysis is therefore based on data from previous EITI Reports.

Inconsistent revenue allocations

EITI reporting from 2016 to 2020 sheds light on petrodollar transfers and reveals significant inconsistencies. The EITI analysed this information to track revenue allocations across different Governorates. The analysis compares expected versus actual allocations, in line with EITI Requirement 5.2, to identify gaps and trends.

Key findings include:

• No petrodollar transfers were made in 2017.
• A significant peak in allocations occurred in 2019, with approximately USD 506 million in actual disbursements, compared to an expected USD 850 million. This was followed by a decline in disbursements in 2020, totalling USD 312 million. While no disbursements were expected in 2020 according to the allocation formula, the funds may reflect adjustments for previous shortfalls, including the gap in meeting 2019 expectations.
• Allocations varied widely across Governorates, with some receiving no transfers during the period under review and others receiving them only once.
• The Basrah Governorate consistently received the largest share of petrodollar funds.

Importantly, petrodollar allocations did not align with international oil prices, raising concerns about the system’s unpredictability. The Federal Government has attributed these variations to the availability of oil and gas revenues.

Civil society and government officials have expressed concerns over undisbursed petrodollar funds, with some raising the issue in public forums and the media. These findings highlight the need for greater transparency and consistency in Iraq’s subnational revenue-sharing mechanisms.

This analysis is based on data from Iraq’s EITI Reports for the fiscal years 2016 to 2020. See also the Natural Resource Governance Institute’s revenue sharing case study and infographic.