Seeking to break a months-long dispute over how the divided nation would share in the natural resource critical to Iraq's future, the Cabinet last month approved an oil revenue-sharing plan.

The proposal, adopted Feb. 25, mandates that all revenues from current and future oil fields be pooled into a national account and distributed on a per-capita basis among the provincial and regional governments throughout the country.

The draft law still must be passed by the Iraqi parliament, which is expected to review the plan once they reconvene in March.

The revenue-sharing program is aimed at helping assuage Sunni fears that the Shiites and Kurds, who control most of the oil fields throughout the country, would retain the oil wealth for themselves.

The plan, according to a statement by U.S. Ambassador Zalmay Khalilzad, proved that leaders from all of Iraq's communities "can pull together to resolve difficult issues of vital national importance."

Other countries with oil-revenue sharing programs, such as Nigeria, have had fractious debates and sporadic violence among regions over how to determine equitable distribution, but those involved in the Iraq draft oil law are optimistic.

"All Iraqis, irrespective of their geographic location, will benefit from these revenues. There will be no segregation or sectarian division," Thamir Ghadban, a former oil minister serving as a consultant to the negotiating committee, told the Washington Post after the agreement was passed.

The draft oil law also is expected to promote foreign investment by giving international oil companies legal assurance that contracts they sign with regional governorates will not be superseded or nullified by the central government.

"What [oil companies] don't like to do is invest where they're completely uncertain about what the rules of the game are," said Dan Serwer, a vice president at the U.S. Institute of Peace who specializes in societies emerging from conflict. "At least you have the beginnings of a country wide oil regime -- and that's the vital first step towards international investment."

Future of production
Developing a timely solution is critical since oil revenues are the overwhelming source to fund the country's rebuilding process.

Iraq exported about $31 billion worth of crude oil in 2006, which accounts for about 60 percent of their GDP, according to the U.S. State Department.

But if foreign oil companies bring advanced technologies and help develop the existing oil reserves while surveying new ones, experts such as Saad Rahim, an energy analyst for PFC Energy, think that the Iraqi output volume -- and revenue -- could increase rapidly.

Though the new law would go a long way toward attracting international investors, the security situation in Iraq is still problematic to the industry's development.

"The No. 1 reason for not going into Iraq is that other investment opportunities have less risk and produce similar rewards, like oil in Libya," said Gal Luft, co-director of the Institute for Analysis of Global Security.

Since the war in Iraq began in 2003, there have been almost 400 attacks on oil pipelines, fields and personnel by insurgents, according to the IAGS Iraq Pipeline Watch.

"I think [security] is what will determine whether oil companies will come in, bringing in expensive equipment and very skilled labor that have to be insured for millions and millions of dollars," said Luft.

While the investment capital and experience of corporations is necessary for the progress of the Iraq oil industry, Iraqis need to keep tabs on what is going on, said USIP's Serwer.

"You need the internationals in there to start cleaning up the mess, putting meters on the well heads -- doing the elementary things," said Serwer. "But the Iraqis need to keep a careful eye on what's going on to make the rules reasonable and fair for the internationals or locals."

And "if the security situation is resolved, you could see 4 million barrels a day in five to seven years," Rahim said.

Slowly rebounding
Iraq's oil industry has endured a turbulent past, from a peak in oil production in the late 1970s to an output nadir amid sanctions and embargoes that followed the first Gulf War in the mid-1990s.

In 1979, the country produced just over 3.5 million barrels of oil a day, according to the U.S. Department of Energy, but production capabilities declined as the country was mired in the Iran-Iraq war until the late 1980s.

Iraq's oil production returned to 3.5 million barrels a day by 1990, but the success was short-lived. The consequences of former dictator Saddam Hussein's resistance in the first Persian Gulf war in 1991 had a detrimental effect on oil output.

The subsequent U.N. sanctions on Iraq oil exports throughout the 1990s, mismanagement of oil fields, and lack of foreign investment under the Saddam regime decimated the Iraqi oil industry. By 1996, the country was producing 600,000 barrels a day.

"Iraq has been the story of underinvestment since the Iran-Iraq war. The first gulf war and the mid-'90s were basically a lost decade for the Iraqi oil sector," said Rahim.

In 1999, the UN sanctions were lifted, but as production started to recover, the U.S.-led invasion in 2003 and resulting insurgency again took a toll on the industry.

Current oil output remains relatively low -- the country produced 1.64 million barrels a day in January 2007, according to the U.S. State Department.

Iraq is estimated to have at least 115 billion barrels of proven oil reserves, according to the U.S. Department of Energy, making it second in the world only to Saudi Arabia, who has an estimated 261 billion barrels.

Because so many of the oil reserves have been unexplored, especially in western regions like Anbar province, some energy consultants, such as the Center for Global Energy Studies, believe the country could contain almost 300 billion barrels.

-- By Jonathan Brand, Online NewsHour