And the US still not getting the spoils . . .

Fighting overshadows Iraq's oil law

By Adam Wolfe

Iraq's national oil law has been touted as a major step toward the political reconciliation of the country's major sects. The US military "surge" in Baghdad is, in part, designed to provide the sectarian-defined political groups breathing room to pass this and other measures that would give every group a greater stake in the political and economic future of a unified Iraq. Yet as negotiations over the oil law drag on, and grow increasingly bitter, such reconciliation seems less and less likely.

It now appears impossible for the Iraqi Parliament to pass the national oil law by the government-imposed deadline of May 31. The immediate cost of this failure will be economic - while many of the Western majors will not invest in Iraq because of the remaining security risks, Eastern and smaller oil firms appear willing if the political risks are first removed through legislation.

However, the long-term damage done by the failure to reach a consensus on the oil law will be a hardening of the sectarian fractures in Iraq's political landscape. The debates surrounding the oil law do not center on what is best for the country as a whole, but only on what is best for each sectarian group. By defining the debate as yet another zero-sum competition, Iraq's politicians have made it impossible to emerge from the negotiations without at least one group feeling like the losers. The US Embassy in Iraq has only encouraged this situation by insisting on a greater role for foreign firms in future investments.

As such, reconciliation will never emerge from the passage of an oil law in Iraq. This darkens the prospects of success for the US military "surge".

Background on the oil law
The Iraqi constitution passed in 2005 was deliberately vague on ownership and control of Iraq's oil. The document was written in such a way as to win the approval of the Kurdish and Shi'ite negotiators (Sunni Arab representation at the negotiations was minimal because the Sunni leadership was still largely boycotting the political process at the time). To do so, the text was vague on issues of governance and specific on issues of power politics.

Article 111 of the constitution states that "oil and gas are [under] the ownership of all the people of Iraq", while Article 112 calls for distribution of oil revenues to be allocated "in a fair manner in proportion to the population", with little clarity on either issue. Because the constitution is so vague, and because Sunni Arab leaders remain unsatisfied with large portions of the constitution, a new oil law is needed to clarify issues of control and revenue distribution.

The importance of a comprehensible oil law cannot be understated. The oil sector accounts for 95% of the government's revenues. Iraq's proven reserves are estimated at 115 billion barrels, putting it only behind Saudi Arabia and Canada. Less than 20% of the country has been explored, however, and many believe that Iraq's western regions could almost double Iraq's proven reserves if exploration were to go ahead.

It is vital for the future of Iraq that there is legal certainty in the oil industry to encourage future exploration and acceptable distribution of the country's leading stream of revenue among Iraq's major sectarian groupings.

The Kurdish position
Kurdish opposition to the current draft is based on fear that the central government will have too much control over the oilfields in the relatively peaceful north.

Kurdish leaders claim that the constitution gives them the right to develop the proven reserves in their semi-autonomous region because it grants regional control over existing oil reserves. However, Shi'ite and Sunni leaders interpret the constitution as only granting regional control to operations that were developed before 2005. This would mean that incremental additions to existing operations would also be controlled by the central government. Since the constitution did not define what constitutes a "new" field, the sectarian groups are now pushing for their interpretation to be spelled out in the law.

The Kurds also want decisions about foreign investment to be made at the regional level. In fact, they have already negotiated deals with foreign oil firms to explore and develop the Kurdish semi-autonomous zone. In 2004, the Kurdish Democratic Party reached an agreement with Norway's DNO ASA, which began drilling in December 2005. This month, DNO announced that it had begun pumping oil and will be able to deliver it to the market in June. Under the existing draft of the oil law, the deal reached with DNO and other contracts made by the Kurdistan Regional Government (KRG) would have to be renegotiated.

Kurdish leaders are concerned about granting control to the central government for two main reasons. First, assuming that Kirkuk is brought under control of the KRG, the proven reserves in the semi-autonomous region would provide enough revenues to fund a Kurdish state when Kurdish leaders feel it is time to cross that bridge. Second, they are skeptical about granting control to the ill-defined bodies that would control oil developments and revenues, which the central government would oversee.

The existing draft would create the Iraqi National Oil Co (INOC), a state-run oil firm, to manage new projects. The Federal Oil and Gas Council would regulate the industry, but it is not clear how membership to the council would be granted, or whether it would be limited to Iraqis.

The Kurdish leadership would prefer regional control of all oil reserves, with a defined portion of revenues going to the central government. Ideally, existing oilfields would contribute a lower rate, and newly developed fields (narrowly defined) would contribute to the central fund at a higher rate.

Sunni objections
Opposition to the draft oil law is only part of a larger agenda for Sunni politicians. The Sunni-majority region is oil-poor, and Sunni
politicians fear that the oil law could cut off their regions from Iraq's main source of income.

Vice President Tariq al-Hashimi, leader of the Iraqi Accord Front, earlier threatened to pull his party's 44 politicians out of the 275-member Parliament if the government did not meet his demands for redrafting the constitution before May 15. After a face-saving meeting with the prime minister and the president, Hashimi



backed away from his threat. Nevertheless, many Sunni politicians are only interested in passing the oil law if it also leads to revisions in the constitution.

Sunni demands are primarily concerned with creating a strong central government and preventing the breakup of Iraq into autonomous zones. As such, Sunni negotiators are pushing for a larger role for INOC in new oil developments. It is their belief that Sunnis would need to be brought in to run the company because of their experience gained under Saddam Hussein's regime in operating Iraq's oil industry. They would also like to limit the role played by foreign firms in developing Iraq's reserves, partly for similar reasons.

Sunni politicians are also pushing for redistribution based on population, and discounting other concerns that might be brought into the equation such as retributions for hardships endured under Saddam.

While many of their demands are close to those of the Shi'ite leadership, the Sunnis appear willing to prevent the law's passage until their other demands are granted.

Competing Shi'ite visions
The Shi'ite leadership is united in its desire for a stronger role to be played by the central government in Iraq's oil sector, if only to prevent the Kurdish region from growing in power.

The Iraqi oil minister, Hussein al-Shahristani, has inserted language into the draft bill that would strengthen the government's role. Four appendices were inserted into the law after it emerged from the cabinet in February, which appear to grant INOC control over 93% of Iraq's reserves. This is not acceptable to the Kurdish leadership and is now a major obstacle to its passage.

However, there is a large split within the Shi'ite majority over the role of the central government. The politicians aligned with Muqtada al-Sadr favor a strong central government for strategic reasons. Since the US-led invasion of Iraq, Sadr has advocated maintaining the existing borders of Iraq, as well as a powerful national government, because he believes this will lead to the creation of a strong Shi'ite state on Iran's border.

Currently, Sadr seems to be preparing for the downfall of the government led by Prime Minister Nuri al-Maliki. For this reason, Sadr's loyalists may prove to be another obstacle to the passage of the oil law, even if they believe in the spirit of the text. They may believe that they can hasten Maliki's departure by preventing his government from achieving one of the benchmarks often mentioned in Washington to judge Iraq's political progress. They believe that if Maliki's government fails to reach the benchmarks, Washington will be forced to begin pulling its troops out of Iraq. One strategy for doing this may be to insert language into the draft oil law that they know will be unacceptable to their Kurdish counterparts.

The other main Shi'ite faction, the United Iraqi Alliance (UIA), made up of the Islamic Da'wa Party and the Supreme Council for the Islamic Revolution in Iraq (SCIRI), was formerly closely aligned with Iran. However, it has moved closer to the interests of the United States as it tries to maintain Maliki's government. In fact, SCIRI re-branded itself as the Supreme Iraqi Islamic Council (SIIC) this month to distance itself from the Islamic Revolution in Iran and give it more of an Iraqi-centric title.

The main goal of the UIA at this point is passing the oil law in whatever form is acceptable. Because Washington has hinged the prospects of its current "surge" policy on Maliki's ability to reach reconciliation with Iraq's other groups, the oil law has become even more important. Every other group knows this, and their intransigence stems from either a desire to gain concessions from the UIA on other issues or a goal of removing the UIA from power.

Benchmarks, investments drive US
President George W Bush's "surge" strategy in Iraq is increasingly losing political support. With the Democratic Party controlling Congress, the pressure to demonstrate that the military policy is working has grown.

The domestic debate in the US seems settled on granting the military until September to prove that the surge has had an effect on security conditions in Baghdad. Yet lawmakers are insistent that Iraq's government must demonstrate political progress by redrafting portions of the constitution to mollify Sunni concerns, revise the de-Ba'athification laws, hold provincial elections, and pass a national oil law.

As a result, the US Embassy in Iraq is pressuring the sectarian groups to pass the oil law as soon as possible. Still, Washington does have an agenda as to what the law should look like.

US-funded consultants had a significant role in shaping the draft oil law in Iraq. Firms such as BearingPoint were brought in to advise the Iraqi government and advocated allowing for private competition in the oil sector. It is Washington's belief that Iraq's oil sector will be most efficiently exploited and managed through the competition of private oil firms, including foreign companies. As such, Washington would like to reduce the role played by INOC in the oil sector. However, at this point passing the oil law is more important to Washington than granting rights to foreign oil companies.

Conclusion
Iraq's national oil law has become an important factor in gauging the country's progress on political reconciliation. Judging by the debate surrounding the oil law, such a reconciliation will not be in the offing any time soon. Each sectarian and political group brings to the debate its own agenda, and these are incompatible with each other. Rather than looking for areas where compromise might be found, each group has dug in and looks to demand further concessions before voting for the oil law.

This puts Washington and Maliki in the precarious position of pushing for any law to be passed, even if it may be against their interests in the long term. Washington has hinged its military "surge" on progress from Maliki's government to pass measures demonstrating the political reconciliation of Iraq's sectarian groups. In turn, Maliki must push for the passage of such measures out of fear of losing support from Washington.

This is a situation that the Kurdish, Sunni, and Sadr-led groups would like to use to their advantage. Because the debate has been framed in these zero-sum terms, there will invariably be a loser. This, by definition, makes the possibility of Iraq's oil law leading to national reconciliation zero. It is likely that the law will be passed in some form in the next few weeks, but its passage will only hasten rather than slow Iraq's drift toward factionalism.

Published with permission of the Power and Interest News Report, an analysis-based publication that seeks to provide insight into various conflicts, regions and points of interest around the globe. All comments should be directed to content@pinr.com.

(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. weazlsrevenge has no affiliation whatsoever with the originator of this article nor is weazlsrevenge endorsed or sponsored by the originator.)



Original article posted here.