UK: Post-conflict Iraq

Last Updated: 23 April 2003

There are a number of public international law issues that arise in relation to the current situation in Iraq following the recent armed conflict there. Of note moving forward on the commercial side will be the issue of sanctions, the issue of contracts entered into with the previous government of Iraq, and the issue of contracts for reconstruction activities entered into with the US government or other agencies acting in relation to Iraq.

One fundamental point is that, under public international law, the State of Iraq has legally continued to exist, despite the recent armed conflict and the apparent lack of a government. Under public international law generally, a change - or lack - of government has no effect on the continuity of a State or the underlying status of its legal obligations. Thus, the law in relation to Iraq has not changed merely because the previous government is no longer functioning. This includes the issue of Iraq’s legal title to its oil.

Sanctions

It is important to remember that UN, EU and national sanctions regimes concerning Iraq remain (at the time this newsletter went to press) in place. It therefore continues to be, broadly speaking, illegal under international and national laws to engage in business in Iraq or to confer an economic benefit on anyone in Iraq, or on the government of Iraq or any of its agencies that still exist.

This situation will continue until both the international and the national sanctions regimes concerning Iraq are amended or terminated. Even after news of such amendments or termination of sanctions laws is made public, it will be prudent for anyone seeking to engage in business in Iraq or with Iraqi entities to obtain public international law advice as to the precise status of the sanctions regimes and their application, if any, to the proposed transaction.

Contracts entered into with the previous government of Iraq

There has been much popular debate, most of it ill-informed from a public international law perspective, as to the legality of any contracts, including oil concessions, entered into between foreign entities and the previous government of Iraq. As noted above, the State of Iraq has maintained its legal continuity under international law. To the extent that the previous government of Iraq was exercising the sovereign authority of the State of Iraq, any contracts that it legally entered into are therefore obligations of the State of Iraq.

This means that the current legal status of contracts entered into with the previous government depends in large measure on whether they were legally entered into and continued in force. To decide that question, each contract must be examined in relation to international law, and UN and relevant domestic legal requirements related to Iraq, including sanctions.

For example, some contractual obligations entered into whilst sanctions were being applied against Iraq may have violated the relevant international and national laws. If so, their legality and enforceability is open to question. Anyone interested in upholding or challenging a contract entered into by the previous government of Iraq should obtain public international law advice on the status of that contract.

Contracts for reconstruction activities entered into with the US government or other agencies acting in relation to Iraq

As noted above, the Iraqi sanctions regimes continue to apply. A number of international financial institutions have been reluctant to enter into specific discussions in Iraq about funding, even related to its immediate reconstruction, without the protection of UN approval, for fear that doing so would violate the present sanctions regime. This concern should be shared by anyone interested in participating in the anticipated reconstruction programme.

This is one of the reasons why the US and coalition governments called for a quick lifting of the UN sanctions regime against Iraq. It appears that, in recent days, France has changed its initial opposition to this and it may be that sanctions will be soon lifted.

Other public international law issues will also arise in connection with reconstruction contracts. As noted above, it will be prudent for anyone seeking to engage in business related to the reconstruction of Iraq to obtain public international law advice.

Who owns the oil?

A further international law issue, out of the many, to consider is the legal title to Iraqi oil. Who owns it, whether it is in the storage tanks of Ceyhan or the oil fields of Kirkut? The answer lies in the continuity of the State of Iraq. Ownership in the oil has not changed: it is still owned by Iraq.

The problem in relation to buying or selling any such oil is that there is currently (again, at the time of printing) no authority capable of exercising the sovereignty of the State of Iraq that would in turn be capable of selling its oil, whether under a rejuvenated UN Oil-for- Food programme or otherwise.

There is no confusion over the legal title in principle, just over the ability to exercise control over that title. As the situation evolves, answers to the practical question of buying Iraqi oil will presumably become clearer.

Article by Robert Volterra

© Herbert Smith 2003

The content of this article does not constitute legal advice and should not be relied on as such. Specific advice should be sought about your specific circumstances.

For more information on this or other Herbert Smith publications, please email us.

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