Analysis: Fight rages over Iraq oil law

By BEN LANDO Discussions turned contentious among the more than 60 Iraqi oil officials reviewing Iraq's draft hydrocarbons bill last week in the United Arab Emirates.

But the dispute highlighted the need for further negotiations on the proposed law that was stalled in talks for nearly eight months, then pushed through Iraq's Cabinet without most key provisions.

Tariq Shafiq, one of three authors of the law, said he attended the Dubai summit "reluctantly," at the request of Oil Minister Hussein al-Shahristani. "I thought it would help," Shafiq said, hoping all Iraqi sides in the debate over its oil law would meet and iron out their differences. "Apparently it did not." Petroleum Intelligence Weekly reports talks in Dubai led to "heated exchanges." Instead, the voices of those who disagree with the law or, like Shafiq, oppose what it has become since the initial draft and how it was kept from the public, were not given part of the platform.

"Had there been genuine interest in having consensus," Shafiq said, "the two differing parties should have sat -- not publicly in front of the television -- to discuss with an open heart how you can reach a compromise. But this apparently was not their aim." Most of the law, which is better referred to as a regime, or a set of interworking laws, has yet to be finalized. But the main sticking points have the central government and Kurdistan Regional Government at loggerheads still.

Although the Bush administration, led by former U.S. Ambassador to Iraq and now U.N. Ambassador Zalmay Khalilzad, praised passage of the framework law when Iraq's Cabinet approved it late February, it doesn't quite qualify as one of the benchmarks he has set for success in Iraq.

"To give every Iraqi citizen a stake in the country's economy, Iraq will pass legislation to share oil revenues among all Iraqis," Bush said in a national address Jan. 10. But neither the KRG nor the central government has agreed on the percentage of oil revenue to be shared. The KRG wants an automatic mechanism to redistribute the funds, while the central government wants it collected to the central bank, to be doled out by the Iraqi finance minister. Before any more development of the oil sector, struggling to produce 2 million barrels per day, both sides must agree on which of the 116 billion barrels worth of fields will be under the control of the central government -- most likely via the reconstituted Iraq National Oil Co. -- and which fields the regions and governorates will control. The Iraqi constitution, passed in 2005, was written vaguely to garner enough support, but fueled the current disagreement over control of oil reserves, the world's third-largest.

Shahristani told reporters on the sidelines of the Dubai meeting that Parliament would take up the law this week -- which didn't happen -- while Ashti Hawrami, the KRG's oil minister, vowed Kurdish parliamentarians would veto it as written.

Negotiations continue on other aspects, such as the contract models allowed to sign with much-needed investors and the exact roles the federal oil and gas council, Iraq Oil Minister and INOC will play.

All this is supposed to be done by May 31, a deadline set by a Bush administration that needs a progress marker for Iraq, a fragile Iraqi central government that is falling apart and the KRG that is ready to continue development in its semi-autonomous and relatively peaceful northern region.

"I just don't see that. It's just too much," said Frank A. Verrastro, director and senior fellow of the energy program at the Center for Strategic and International Studies, a centrist Washington think tank. The framework is important, he said, but it has no value standing alone. He said at least in Dubai they realized there are "significant issues" to resolve still. There are many who oppose the law. Iraq's oil unions have threatened to shutdown production if foreign companies are allowed too much control. Many political and sectarian blocs also feel that way. And Sunnis, a minority group without oil land and the power wielded while Saddam Hussein reigned, fear they'll wind up without if the central government is weak.

"If the law does not state a precise formula for that distribution, then the law is fairly meaningless," said Thomas Mowle, an associate political science professor at the U.S. Air Force Academy who served in the Strategy, Plans, and Assessment Division, Headquarters Multinational Force-Iraq, Baghdad, from August to December 2004. "If the law includes the distribution of revenue from future oil projects, then the Kurds are likely to reject it as unconstitutional," he said. "If the law does not include such revenue, then it will accomplish little toward national reconciliation." Shafiq said "the majority of the oil technocrats are against" the law as written. He said the eight months negotiators took after the drafters were finished was too long. And it was kept secret from the public and parliamentarians, which then added to the politicization. "The weak thing about their procedure is they never published the draft," Shafiq said. "They should have had teams to explain this to unions, to intellectuals, to nongovernmental organizations, to the parliamentarians, and then get the gist of their reactions before they start finalizing a draft."

WASHINGTON, April 27

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