Friday, May 25, 2007

Iraq’s proposed oil law, a key U.S. benchmark for political progress, remains in sharp dispute one week before the government’s self-imposed deadline for passage, and some say it could create more divisions in the fractured country.

“In general, it is a step forward for the Iraqi political process,” said Yahia Said, a London-based analyst with the Revenue Watch Institute who has been closely involved in talks on the draft law.

But Mr. Said and others caution that even if the measure is enacted this summer, Iraq lacks the institutional capability to implement it.

“The design of the law is one thing and implementation is another. There are constraints of capacity,” he said in a telephone interview from London.

“A lot more will depend on implementation and the structures established to implement the law. This is one of the weakest elements,” he said.

The law, running 33 pages in its third and current draft, lays out terms for the control and management of Iraq’s oil fields, with the goal of boosting production and revenues for the benefit of all Iraqis.

The Bush administration has pressed hard for passage in the hope that sectarian tensions fueling the violence in Iraq can be eased by ensuring that Sunnis, Shi’ites and Kurds will benefit fairly from the oil wealth.

But with negotiators rapidly approaching a deadline on Thursday, the factions remain deeply divided on the sharing of revenues, the extent of the role of international companies in the development of fields and the scope of a national oil company.

All the parties agree that Iraq needs outside capital and expertise to develop the potential of its oil fields.

Kate Dourian, a Dubai-based analyst for the oil industry publication Platt’s, said the draft law appears to be deliberately vague about the terms that will be offered to foreign companies.

“At the end of the day, unless you have security and stability, it really doesn’t matter — people are not going to come in,” she said in a telephone interview from Dubai, United Arab Emirates.

Oil executives, who refused to talk on the record given the sensitivity of the talks in Baghdad, said the negotiations are more about the political future of Iraq than oil.

Although Iraqi leaders are under an armistice on the law’s central provisions for production and exploration, a feud has broken out over three appendixes that control revenue-sharing and the creation of a strong national oil company.

The Kurds, whose autonomous region in the north contains large oil fields, are pushing for a more pro-investment law that would encourage production-sharing agreements, a revenue-sharing plan that would benefit oil-rich regions and greater regional control over reserves.

They also are worried that the plan to allow a future Iraqi National Oil Co. (INOC) to control 93 percent of Iraq’s oil reserves would create a “state within a state.”

“We are concerned, as the Kurdistan Regional Government, about an overly powerful national oil company, especially given the fact that we don’t have in place the necessary checks and balances,” said Qubad Talabany, the Kurdistan Regional Government’s Washington representative.

“We have to be diligent on this and understand that oil, if managed well, could be a unifier. But if not managed well, it could further polarize the country,” he said.

The Shi’ites, who hold the majority in the south where Iraq’s other large oil fields are located and currently control the government, want a more restrictive investment law and greater centralized authority over reserves and revenue.

According to Platt’s, Iraqi oil production is lolling at just over 2 million barrels per day, well below the 2.8 million barrels per day produced in Iraq in the months before the war began in March 2003.

Greater regional control over reserves and revenues could provide the basis for a de-facto partitioning of the country, said one former official in the Iraqi Oil Ministry.

“The ones who will benefit are the local mafiosi and the separatist political leaders, whether they are the leaders of the Shi’ite religious parties or the Kurdistan separatist parties,” said Falleh al-Hayat, director general of planning at the Ministry of Oil in 2004.

Even if the oil issue is settled, warned one Iraqi engineer who advises international companies looking to invest in Iraq, squabbles over the supply of electricity and water to the oil industry are inevitable.

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