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Analysis: Iraq oil law stuck on contracts

By BEN LANDO, UPI Energy Correspondent   |   Dec. 13, 2006 at 3:46 PM   |   Comments

WASHINGTON, Dec. 13 (UPI) -- The completion of Iraqi oil law negotiations now hinge on whether the central or regional government has final say on oil contracts, a roadblock negotiators don't seem willing to give on.

There has been some advancement on creating a federal oil law, necessary for development of and investment in the world's third-largest crude reserves, though a top Kurdish official warns compromises his side has made have not been finalized yet.

Qubad Talabany, the Kurdistan Regional Government's representative to the United States, told United Press International Tuesday a new round of negotiations have begun in Baghdad but "we haven't made progress yet."

Sunnis and some Shiite factions in the negotiating committee are demanding the central government have the final word on all oil contracts while the KRG is leading the push to let this aspect be a regional autonomy issue.

Iraq has an estimated 115 billion barrels of proven oil reserves, the third largest in the world, nearly all of it located in the Shiite-controlled south or Kurdish north.

Negotiations on an oil law mirror the fate of Iraq: Sunnis fear the federalism that could result in money from Iraq's oil being withheld. They, along with some Shiite factions, eye a deciding role in a strong central government. Kurds and competing Shiite blocs are in favor of regional rights, fearing a central government doling out money could nix their fair share.

The current constitution is vague on control over oil, stating only existing oil is within the central government's purview and leaving all new or future oil in limbo.

The KRG, and others, interpret this to mean everything not explicitly detailed for the federal government implicitly falls under regional control.

Kurdistan has been semi-autonomous since 1991 and relatively free of the violence plaguing Iraq.

Within this setting, it has begun developing its oil sector, even signing contracts for exploration and production, which the central government has said aren't valid.

"The regions have their sovereignty," Talabany said. "Contracts must be respected by the central government."

He blames a strong centralized government for the Kurdish suffering during much of last century.

"The days of the Kurds being held hostage by Baghdad are over," he said. "We will not be made to feel like beggars."

Hamid al-Bayati, Iraq's representative to the United Nations, said central control brings unanimity across the oil sector, for investors and Iraqis.

"The compromise is the region will have a say on selecting the companies, selecting the proposals, but approval will be the central government," Bayati told UPI.

He said negotiations will continue "until the law is approved."

"This is the conflict you have," said Mohammed Zine, regional manager of Middle East for the energy analyst IHS.

He said now Prime Minister Nouri al-Maliki is facing heat to end violence in Iraq and is in turn resting "big pressure on the government and Oil Minister" to deliver an oil law to the Parliament.

He said he doesn't think this will happen by the end of the year, though there is no telling on daily events in Iraq.

"I don't see what the rush is. Even if you sign a contract there is still big problems with security."

A final oil law will have three main results: settle internal disputes over control of and revenues from oil; lay a groundwork for the estimated $20 billion of investments needed after years of neglect and mismanagement under Saddam Hussein, the toll of U.N. sanctions, the U.S.-led war and ongoing attacks by Sunni and Shiite militias; and both will lead to increased income that can be put toward other reconstruction and upgrade security in the country.

News reports over the weekend claimed a deal on the oil law was close, though Talabany explained each glossed over major remaining issues.

He said while the Kurds have compromised on oil revenue sharing and allowing the central government to be responsible for this collecting and redistributing it, "the mechanisms for distribution of revenues have not been agreed upon yet."

He said oversight, technical and constitutional details "to ensure regions get their share of revenues" have not been finalized. This comes from the fear a central government, be it fueled by greed or a sectarian agenda, will not deliver on the money a region may be due.

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(Comments to energy!@upi.com)

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