Analysis: Pentagon: Iraq oil laws stuck

WASHINGTON, March 12 (UPI) -- A Pentagon report says four key oil-related laws in Iraq are "stalled" in political gridlock while gains in oil and power production could be lost.

The quarterly report to Congress, "Measuring Security and Stability in Iraq," released Tuesday, said the law commonly known as the oil law is the furthest along the political process -- it made it to Parliament but is stuck in the Energy Committee.

The law, which would set guidelines for investment in and governance of Iraq's oil sector, is part of a hydrocarbons package that includes laws governing revenue sharing, reconstituting the national oil company and reorganizing the Ministry of Oil. Those three are still being considered by the Shura Council, a judicial review body.

"All four components of the hydrocarbon law are stalled," the report said. The oil law is at the forefront of a fight over the extent of central control over the oil resources and whether Iraq's oil and gas should be open to foreign investment.

The Pentagon report cited disputes between the central government and Iraq's Kurdistan Regional Government over the latter's decision to pass its own oil law and sign dozens of exploration contracts with international oil firms.

"The KRG's unilateral oil deals with foreign companies, which Minister of Oil (Hussain al-) Shahristani declared illegal, reflect a core difference over the appropriate degree of KRG autonomy," the report added. And it cited Shahristani's moves to blacklist such foreign companies from future projects inside Iraq, as well as cutting oil supplies to two companies -- South Korea's SK Energy and Austria's OMV.

The KRG is also frustrated with Baghdad over its lax enforcement of a provision in the 2005 Constitution that would decide the fate of disputed territories in northern Iraq, just outside the KRG's territory. This includes the oil-rich and multiethnic but heavily Kurdish city of Kirkuk.

Abdul-Hadi al-Hasani, parliamentarian and deputy of the Energy Committee, told United Press International last month an ongoing review of Iraq's Constitution, aimed at ironing out some vague wording and varied interpretations, needs to take place first.

"This will make the way to pass the law of oil and gas," he said. "It will be very easy to be passed because we won't have any disagreements. Roadblocks now are not technical, they are political."

The Pentagon report cited progress of that review being stymied by arguments over the disputed territories and the oil law. All sides in this fight say the Constitution is on their side.

Iraq's oil, gas and electricity sectors have been hard hit by the current war, as well as wars of recent decades, mismanagement by Saddam Hussein and U.N. sanctions. This has damaged infrastructure, harmed oil wells and fields and power plants, prevented new technology from coming to Iraq and prevented modern training for Iraqi workers.

Nevertheless, workers brought oil and electricity production back online shortly after the 2003 invasion. Production last year cracked the 2 million barrel per day average and is now regularly above it. Exports have followed suit, a boon to Iraq in times of even higher oil prices.

Estimates of the short- and medium-term needs of the hydrocarbons and electricity sectors are on the higher side of tens of billions of dollars in order to meet the plans of the Iraqi government to serve Iraqi citizens and industry needs, but also export fuel and electricity.

The Defense Department report said without a new oil law Iraq will be unable to meet its 2010 goal of 3.4 million bpd. It also said refineries are running at below 50 percent capacity and require new equipment, security and electricity. In turn, or as a result, Iraq's power plants are unable to produce what Iraqis need, due to insecurity and a lack of fuel. Electricity production reached key peaks in 2007, but "the challenges eventually overwhelmed the system and electrical production fell in January 2008," the report said.

Iraq's Oil and Electricity ministries, however, have been criticized by Iraqi workers and civil society for not investing enough funds into Iraqi-led projects in the oil and power sectors, instead waiting for foreign companies.

The ministries have routinely spent only a fraction of their multibillion-dollar capital budget, though that percentage is increasing year-on-year. Security issues, new investment legislation, corruption or fears of allegations of graft, and a lack of administrative capacity to spend the funds have been blamed for that spending.

U.S. auditors are being asked by Congress to look into how much Iraq is spending on reconstruction.

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(e-mail: blando@upi.com)