Iraq drafts deal on oil riches

The Iraqi cabinet has signed off on draft legislation that would manage direct huge oil reserves, and spread its wealth among the country's ethnic and sectarian divisions. Reuters reports that passing such a law has been "a key demand" of the United States as part of its continuing support for the government of Prime Minister Nouri al-Maliki.

Mr Maliki announced the decision after the Kurds accepted the draft oil bill over the weekend – nearly two months after the Government's own deadline for enacting a new oil law. He hailed the measures as "another foundation stone" in the building of a new Iraq, which relies on oil revenues for about 90 per cent of its national budget.

The legislation now goes to parliament for approval but it is unclear when the 275-member parliament will vote on the measure. The legislature reconvenes early next month.

Iraqi has the world's third-largest reserves of oil.

Revenues will be distributed to all 18 provinces based on population size. This was a concession to the Sunnis – the areas in which cities are concentrated have relatively few oil reserves. Under the law, regional administrations will be empowered to negotiate deals with international oil companies. The contracts will then be reviewed by the central government in Baghdad.

The Los Angeles Times reports that although the legislation still needs to be passed by the full Iraqi parliament, the deal was viewed as overcoming a "significant hurdle."

Iraq's oil riches predominantly lie in the Kurdish-controlled north and the Shiite-controlled south. Reaching an agreement essentially required both parties to be willing to share their bounty with Sunnis in the middle – a particularly painful prospect as Sunnis under Saddam Hussein controlled the entire government.

Kurds, who are pushing for a referendum on withdrawal from Iraq, wanted more control to strike contracts with foreign firms and spend profits as they see fit.

The Associated Press reports that passage of the bill has been delayed because the Shiite-led Iraqi government and the self-ruled Kurdish administration of northern Iraq can't agree who will have the "final say in negotiating contracts and managing revenues."

The haggling over oil went to the heart of the Iraqi crisis – the failure of religious and ethnic parties to compromise in the interest of saving the nation. Without such compromises, US commanders doubt that military crackdowns and the current US and Iraqi security operation can produce long-term stability.

The Iraqis also missed a year-end deadline to establish provincial elections, reverse regulations that exclude many Sunnis from government posts, and grant limited political amnesty to some insurgents.

Al Jazeera reports that some Iraqi oil experts disapprove of the idea that the provincial administrations will be able to negotiate contracts on their own.

On Tuesday, Fadil Chalabi, an Iraq oil expert at the Centre for Global Energy Studies, London, told Al Jazeera: "Now that the law allows for provincial governments to negotiate separately with international oil companies, in the same way as the Kurds have done with the Norwegian and Canadian companies in the north of Iraq, I believe if this is going to be the case, then it could have disastrous effects on the development of oil industry in Iraq.

"It will lead to fragmentation, it will have no central planning, no central policy-making authority – and if this is going to be the case, this law could [have] negative effects on the oil industry in Iraq."

Axel Bush of London's Energy Intelligence Group told Al Jazeera that the important bit of the new law is that the Iraqi government is setting up the Central Council to review any contracts negotiated by provincial administrations. Mr. Bush said that what the Iraqis are trying to ensure is that "nobody negotiates away the rights of the Iraqi people to the national treasure that oil is."

AP also notes in the article above that the negotiations are "reminiscent of the intense American arm-twisting, public pressure and backroom deal-making that have pushed nearly every step in Iraq's political transformation since the US-led invasion nearly four years ago." These previous agreements have often allowed Washington to "declare success" but at the same time create long-term problems for Iraq. Examples include a "divisive" election in 2005 that allowed the Sunni insurgency to gain strength, and a new constitution that even the United States now admits must be substantially amended in order to promote peace among Iraq's sectarian divisions.

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