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Kurds Get Piece of Oil Wealth; Foreign Investment Questions Linger

BY Admin  June 22, 2007 at 3:30 PM EDT

Oil worker in Iraq

The Kurdish region will receive 17 percent of all oil revenue under the agreement, settling one of the major debates surrounding the draft oil law. The split of control over the oil fields between the central and regional governments, as well as the role of foreign companies, still needs to be determined.

“There is an understanding that the revenue has to be shared, it’s more an issue of who has the ownership of the oil, who has the right to control the oil and oil exportation,” said Marina Ottaway, director of the Middle East program at the Carnegie Endowment for International Peace.

The oil law has been framed by the U.S. government as a necessity for jumpstarting the economy and as a critical indicator of willingness by Sunnis, Shiites and Kurds to find consensus on national issues.

Both President Bush and Congress have called for expeditious passage of the law, which was first drafted in February and missed a late May deadline. When Congress passed a bill funding the war in May it also made reconstruction funds contingent on a set of benchmarks, including the oil law.

While pressure on the Baghdad government mounted, Iraqi oil unions staged protests in early June. Many Iraqis believe the measure would drive the oil industry toward privatization and unfairly benefit outside oil companies.

“We think the proposed oil law doesn’t serve the interests of the Iraqi people at all,” said Faleh Abood Umara, general secretary of the Southern Oil Company Union and the Iraqi Federation of Oil Workers’ Unions, at a news conference in New York on June 18. “It emphasizes or confirms American hegemony over Iraqi oil fields.”

The unions have said they worry negotiations could result in a law that would give foreign companies too much influence. But details of how foreign investors would be involved are still being nailed down, said David Pumphrey, deputy director of the energy program at the Center for Strategic and International Studies.

“The current draft has really swung back into one where the role for foreign countries is more limited than it was in some of the original discussions that were going on,” Pumphrey said. “There have been presumptions that you immediately move into profit sharing agreements, but it’s not necessarily true.”

Division of control between regional authorities and the central government is the other major obstacle to negotiations.

Iraq’s known oil reserves are primarily in the Shiite dominated south and the Kurdish-controlled north of the country. Sunni leaders are pushing for control to go to the national government, while Kurdish leaders, anxious to keep ownership of reserves in their area, want more control to the regions.

And while many energy experts agree that foreign investment by oil companies will be necessary to bring the country to its full oil output potential, the desire of at least one faction to reach a compromise on the law may be fading.

“[The Kurds] seem to be the ones blocking the movement forward,” Pumphrey said, in part because they want to be assured that existing contracts they have signed will continue.

Iraq’s Kurds have long worked for an independent Kurdistan and oil wealth would be an important piece of any future autonomy.

The proposal of giving heavy sway to a centralized state-run company, the Iraq National Oil Company, is one of the main points of contention for the Kurds.

“Giving control of all oil resources to a national company goes against the Kurds and would favor the Sunnis who, for the time being, don’t have any oil reserves in their own territory,” Ottaway said.

Foreign oil companies, meanwhile, are waiting for the oil law to provide a structure in which to operate in the country. The law was intended to build confidence in the stability of the system and provide incentives to work in a still violent region.

“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,” Greg Priddy, an energy analyst at the Eurasia Group, told the NewsHour in May.

“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.”

Iraq has about 115 billion barrels of proven oil reserves, putting it just behind Saudi Arabia and Iran. Oil accounts for 95 percent of Iraqi government revenue, but production levels are still far below optimal levels and Iraq hopes to double production by 2010.

The oil law is an integral part of that plan, and despite the continuous delays, Iraqi government officials are optimistic that progress is near.

“The hydrocarbon law is a real possibility, we will be able to get it,” Iraqi Foreign Minister Hoshyar Zebari told the NewsHour on June 14. “Still, there are some thorny issues that need to be negotiated, but it’s very close for a deal.”