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How will Iraq share the oil?

In the US, the demand that Iraq pass an oil law is a 'benchmark' that is becoming a flashpoint.

By Staff writer of The Christian Science Monitor / May 18, 2007


The reason Iraq needs to pass a new oil law, President Bush has said, is to "share oil revenues among all of Iraq's citizens" – Sunnis, Shiites, and Kurds – and to help unify the country.

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It's a goal broadly supported in the US Congress and by the Iraq Study Group, whose 2006 report said such an oil law was needed, too, to "create a fiscal and legal framework for investment" in the industry.

But now the oil law's status as a US "benchmark" for progress in Iraq is emerging as a flash point in both Baghdad and Washington.

So far, the frustration on Capitol Hill is mainly over the Iraqi government's perceived foot-dragging in finishing the oil law, which US advisers had a hand in crafting. But resistance is also surfacing to the substance of the oil bill, especially whether its main effect will be to ensure international companies a lucrative role in Iraq's rich oil fields. With House and Senate conferees about to put their heads together on a new war-funding bill that includes benchmarks for progress in Iraq, the proposed oil legislation is beginning to come under closer scrutiny.

"While we can't confirm it, there are enough reports out there that appear to indicate that undue, unfair preference and the influence of our oil companies are part of the Iraqi hydrocarbon law, and if that is true, that is not correct," says Rep. Joe Sestak (D) of Pennsylvania, a former admiral and defense adviser to the Clinton administration. "The aim of benchmarks is to help the process along, but we need benchmarks that are appropriate for the Iraqis and the Americans – not just our economy but our ideals."

US firms as the major beneficiary?

Fueling new resistance to the oil benchmark are reports that the draft law in fact says little about sharing oil revenues among Iraqi groups and a lot about setting up a framework for investment that may be disadvantageous to Iraqis over the long term. On the flip side: Iraq's oil industry badly needs new investment, and oil companies are reluctant to go into Iraq without a legal framework that ensures that the contracts they sign will be respected by future Iraqi governments.

Last week, Rep. Dennis Kucinich (D) of Ohio, who is a presidential candidate, led off opposition to the draft law in a letter to Democratic colleagues. On Thursday, a coalition of oil industry watchdog groups and peace activists called on Speaker Nancy Pelosi and Senator Reid to drop the Iraqi oil law as a benchmark for progress in Iraq.

"If Democrats are perceived to be advocating withdrawal [of US troops] only after access to Iraqi oil has been assured, this will do little to reassure critics," says Steve Kretzmann, executive director of Oil Change International, a watchdog group that drafted the letter.

In an open letter to Democrats in the US Congress last week, Hasan Jum'a Awwad, head of the Iraqi Federation of Oil Unions, echoed that view. He urged that lawmakers "not link withdrawal [of US troops] with the oil law, especially since the USA claimed that it came to Iraq as a liberator and not in order to control Iraq's resources."

For most US lawmakers, the delay in passing the oil law shows that Iraq's new leaders aren't making tough political choices about their country's future, such as how to fairly distribute Iraq's oil wealth among all Iraqi groups.

"The Iraqi government remains in a dangerous stalemate: No oil law," Senate majority leader Harry Reid said during a debate on war policy on Wednesday.

Why Iraqis don't want to rush

But in Baghdad, some Iraqi lawmakers say the oil issue is too vast and complex to rush. It should be the last issue – not one of the first – to be resolved, they say.

Moreover, Iraqi critics of the current draft law say it does not address the issues that US lawmakers think it does.

"The actual draft law has nothing to do with sharing the oil revenue," says former Iraqi oil minister Issam Al Chalabi, in a phone interview from Amman, Jordan. The law aims to set a framework for investment by outside oil companies, including favorable production-sharing agreements that are typically used to reward companies for taking on risk, he says.