Six key questions for the future of Iraq - and its oil

Iraq owes another $120 billion to foreign governments and other foreign entities. The US has been striving to negotiate a dramatic reduction in that amount, perhaps by two-thirds. But at the G-8 summit earlier this month, France refused to go below a 50 percent cut. When the debt talks are over, Iraq may still owe more than $40 billion on these debts.

Full repayment of the debts, even with Iraq's huge oil wealth, is most unlikely.

4. How will the Kurds' desire for control of the northern oil fields be worked out? At the moment, the plan is for the Baghdad government to centralize the oil revenues and then distribute the benefits to the entire country, including the Kurdish areas in the north. The Kurds get some oil money directly now.

5. Will Iraq make all oil payments public and transparent in order to discourage corruption? That is being urged on all oil-producing nations by the Open Society Institute in New York, a George Soros group.

6. What model will Iraq take for its oil industry? That of Saudi Arabia, Norway, Venezuela, or even Alaska? Alaska distributes some of its oil profits to its citizens. Nancy Birdsall, president of the Center for Global Development, would like Iraq to do something similar as a means of avoiding what is commonly called the "resource curse."

For most developing countries, "oil riches are far from the blessing they are often assumed to be," write Ms. Birdsall and Arvind Subramanian, an International Monetary Fund official, in a forthcoming Foreign Affairs article. "In fact, countries often end up poor precisely because they are oil rich."

Oil wealth, they note, tends to impede the development of institutions and values crucial to open, market-based economies and civil liberties, including the rule of law, protection of property rights, and political participation.

The 34 oil-rich developing countries have weak political and economic institutions. In some cases, such as the Democratic Republic of the Congo and Angola, they're nonexistent. Even Libya and especially rich Saudi Arabia suffer from "underdeveloped political institutions."

Oil riches often have led to high-level corruption and unchecked abuse of state power. With oil prices usually volatile, a nation relying on oil wealth sometimes faces a pattern of flush spending and then disruptive spending cuts that hurt development efforts.

Major oil revenues can also force up the value of a nation's currency on foreign-exchange markets, making it difficult for other industries to compete.

To avoid the oil curse, Birdsall and Mr. Subramanian suggest Iraq should incorporate into its constitution a provision enshrining the right of each Iraqi household to receive a share of the country's oil proceeds.

The chances of that happening appear slim. But one way or another, Washington officials say, Iraq's oil wealth must be used to serve the Iraqi people.

"Oil doesn't correlate with national success that often," a Washington official admits. In one week's time, it will be up to Iraqis to figure out how to avoid the resource curse.

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