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Iraqi Lawmakers Struggle with Oil Revenue-sharing Plan

May 18, 2007 at 6:05 PM EST
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RAY SUAREZ: While a massive hunt continued south of Baghdad for the three U.S. soldiers abducted last Saturday, and fighting intensified between Americans and insurgents in Diyala province north of the Iraqi capital, congressional leaders met with President Bush’s top aides in Washington to hammer out a new funding bill that could include benchmarks for the Iraqi government to achieve.

One key benchmark: passage of a law aimed at sharing the nation’s oil revenues among all of Iraq’s ethnic and regional groups, and to open the industry to international investment.

Iraq’s proven oil reserves are estimated at about 115 billion barrels, placing it right behind Saudi Arabia and Iran. Going into the war, then-Deputy Defense Secretary Paul Wolfowitz told Congress Iraq could finance any post-war reconstruction with its own oil money.

PAUL WOLFOWITZ, Former World Bank President: The oil revenues of that country could bring between $50 billion and $100 billion over the course of the next two or three years. We’re dealing with a country that can really finance its own reconstruction, and relatively soon.

RAY SUAREZ: But since the war began four years ago, Iraq has been pumping below pre-war levels, about two million barrels per day. Insurgent attacks on pipelines and refineries have limited the ability to refine or export the oil, and that’s despite $3 billion of U.S. aid and $3 billion in Iraqi money for oil industry reconstruction. For ordinary Iraqis, it’s meant waiting for hours to fill their gas tanks.

Much of Iraq’s oil is concentrated in the Shiite south, with about 70 percent in and around Basra. And much of the rest is in the Kurdish-controlled north around Kirkuk. That city is divided between Arabs and Kurds. The Kurds want to annex it.

One proposal would give the oil-producing regions control over the revenues instead of the national government. That worries Sunni Arabs, who are concentrated in oil-poor northwestern and central areas.

Describing the draft oil law

RAY SUAREZ: What's the status of the negotiations over Iraq's proposed oil legislation? And what's blocking its passage? For that, we're joined by Greg Priddy, an energy analyst at the Eurasia Group, a risk consulting firm, and Yahia Said, Middle East and North Africa regional director at Revenue Watch Institute, a nonprofit organization that monitors and promotes transparency in Iraq's oil industry.

And, Yahia Said, roughly speaking, what's this draft oil law that's now before parliament supposed to do? What does it create?

YAHIA SAID, Iraq Revenue Watch Institute: It creates a framework for the management of the oil sector, and in particular the management of the upstream sector, the exploration, development, and export of oil.

RAY SUAREZ: A national oil company that's owned by the state of Iraq?

YAHIA SAID: That's part of the element, one of the main elements of the law. The law separates the issue of managing the industry from the issue of distributing the revenues and concentrates on the first, and establishes a relatively centralized framework for the management of the industry in the hands of the federal government.

RAY SUAREZ: Greg Priddy, the draft law has been in the form it's in right now before parliament for a little while. What's the hold-up?

GREG PRIDDY, Energy Analyst, Eurasia Group: Well, it's a very controversial bill on a number of levels. There are differing regional interests between Kurdish north, the Shia-dominated south, and Sunni central Iraq.

There's the issue, the largest one, of the distribution of revenue. The U.S. has been pressing for it to be more equitable for the Sunni community to have an incentive to be part of the political process. But there's also the issue of how the contract is structured and whether the industry would actually own reserves in the ground and be able to book reserves.

RAY SUAREZ: Are there mutually contradictory visions of what should be in this bill? Is it sort of stuck, where one side wants one thing that the other side simply won't give?

GREG PRIDDY: There's really very little agreement on it right now. And the underlying differences, both between the ethnic and sectarian factions, as well as over the contract types really haven't been resolved.

In the political discourse there, it's very different than what you hear reported in the West, in that people are comparing it to other states in the Persian Gulf with large reserves, like Kuwait and Iran, which don't allow foreign ownership.

RAY SUAREZ: So, Yahia Said, is this it, stasis? Are they stuck?

YAHIA SAID: Not quite. The law has been voted on unanimously by the Iraqi cabinet, which includes representatives of all the factions mentioned. The law has been negotiated over 18 months to take a candle to the various views.

It is a compromise. It's a fragile compromise. And we have seen defections around it, but, generally, it could stick. The question is the other parts of the jigsaw puzzle, because this is only one out of four laws that determine the framework for managing the oil industry.

RAY SUAREZ: You say that the cabinets voted to approve it. Does it also have to be voted on by the entire parliament?

YAHIA SAID: Definitely, yes. It has not even been submitted to parliament because one of the conditions for it to go in front of parliament is for the other laws to be together with it, the laws on the distribution of revenues, most importantly, but also the laws that establish the Iraq national oil company and the law that reforms the ministry of oil.

Pressure from the United States

RAY SUAREZ: We're in May now, Greg Priddy, and that had been set by the administration as the deadline. Is that really no longer even relevant, that May deadline, or is there a possibility of a breakthrough by the end of the month?

GREG PRIDDY: Oh, I think American considerations politically are beginning to drive the process in Iraq to some degree. There's been American pressure to get this done. And if we end up adopting something with benchmarks, or whatever they end up calling it, particularly if September is the first report, they're going to have to have some progress to show by then.

It's likely the hydrocarbons law would be one of those benchmarks, or at least part of the first package of benchmarks.

RAY SUAREZ: Has the United States had to step softly? And you talk about American pressure, but no one wants to be seen giving into American pressure, I would think, in the Iraqi cabinet or parliament.

GREG PRIDDY: That's very much true, and that's what's delayed passage, but I think that the American need to fuel progress is likely to lead to a ratcheting up of that pressure over the summer, if it's not passed now.

RAY SUAREZ: Yahia Said, what about American oil companies, which is something very different from the American government and the Bush administration? Have they been placing a lot of pressure both in Washington and in Baghdad for movement?

YAHIA SAID: I'm not aware of their pressures in Washington. Presumably they have their channels of trying to influence policymaking here. But in Baghdad, they have had virtually no impact.

Indeed, the United States, while pursuing the passage of the law itself and trying to encourage the Iraqi sides to compromise on it, has been quite careful to avoid being seen as interfering in the content of the law. They want the principle of Iraq having a law that shares resources, that unites the industry passed, but they don't want to be seen as meddling into the content of it.

Obstacles to the law

RAY SUAREZ: Now, recently Qubad Talabani, who represents Kurdish interests in the United States, said something -- and, incidentally, is the son of the president of Iraq -- said, "The oil issue for us," meaning the Kurds, "is a red line. It will signify our participation in Iraq or not."

A threat to withdraw from the country, is that a political gambit, or is there a real danger that the Kurds will use this as the thing that leads them out of a federation?

YAHIA SAID: If it occurs or not, this issue is very important. This is the first application of Iraq's federal constitution. It will show the way of how the Iraqi union will be structured and how it will work into the future. And, therefore, it's very important to get it right; this is the political significance of this law.

Whether the Kurds are looking for reasons or excuses to exit the union is not clear. What the Kurds have always stated is that they are willing to stay in the Iraqi union as long as it serves their interest and as long as this is not feasible for them to separate.

Oil is, of course, a very important issue about sharing resources and sharing competencies. The draft offers a compromise, offers a constructive solution to address this issue, but it's only part of the solution, and there are more disagreements ahead, especially on the revenue-sharing issue.

RAY SUAREZ: You know, Greg Priddy, they're talking about oil sitting under Anbar province, huge, possibly present reserves. Would this create a framework for future discoveries, as well, the current law?

GREG PRIDDY: Well, the 100 billion barrels that was talked about in the news reports a couple of weeks ago is, as you mentioned, probable reserves. And it was based on an analysis, seismic data that was taken quite a few years ago, back in the '70s and early '80s.

And that data shows that there is likely a large amount of oil there, but they haven't drilled widely. They've only drilled a few test wells back then, and there hasn't been any recently activity. But it's probable that there is a good deal of oil there, if the security situation improved and if the legal framework to develop it existed.

RAY SUAREZ: If the security situation improves is a big "if." Has the oil industry, since the fall of Saddam Hussein, been a big target of the insurgency?

GREG PRIDDY: Yes, very much so. I mean, the production has never completely recovered to pre-war levels, and that's largely because the northern pipeline that serves the Kirkuk field and takes it out to the Mediterranean has been attacked so many times. They tried to get that running -- the last time was late last year, but they've pretty much given up on it for the time being.

Next steps for Iraqis

RAY SUAREZ: So, Yahia Said, what next? Here's the bill stuck in parliament. Here are the various warring interests making clear what their bottom-line needs are. Can you get an Iraqi oil company that functions out of this current situation?

YAHIA SAID: It is still possible. As I mentioned, the law within itself contains a compromised framework that should work and that should offer a model for all of Iraq's federalism, but it will require both patience and generosity from the Iraqi political parties, and a distancing from the factional approach that they sometimes take.

And it probably will take also some encouragement from outside for them to compromise and appreciate the importance of achieving an agreement on this issue for the country's future.

RAY SUAREZ: Greg Priddy, patience and generosity, do you see much supply of either?

GREG PRIDDY: Not necessarily. I think there's a lot of concern in the industry that something might be passed rather hastily that doesn't have the specificity that's needed to ensure a stable, legal environment, and this is an industry that makes very long decisions. They reap their profits over a period of decades, and it takes years to develop projects. And they need to be confident that it's going to be stable, not just the next few years, but out 30 years or so, way beyond the U.S. occupation.

RAY SUAREZ: And just to clarify it, this long-term stability, who needs that, people who are going to come in and invest in this industry or become partners with the Iraqi national oil company?

GREG PRIDDY: Right, there would be tens of billions of dollars to invest if they were going to develop large oil deposits that are known there. And that's a very large, very long-term decision for them, and they need to be confident there's a stable legal environment.

RAY SUAREZ: Greg Priddy, Yahia Said, gentlemen, thank you both