Agreement to share oil wealth

February 25, 2007

Kurdish authorities have agreed to back a draft law to manage and share Iraq’s vast oil wealth, removing the last major obstacle to approving the measure and meeting a key U.S. benchmark in Iraq, a top Kurdish official said Saturday.

Approval of a new oil law could help open the way for international oil companies to invest billions to upgrade Iraq’s decrepit wells and pipelines and exploit the country’s reserves, among the world’s largest.

The bill also provides a formula for distributing revenues among all major ethnic and religious groups, easing Sunni fears of being cut out of a future bonanza because their central and western homelands lack extensive reserves.

Massoud Barzani, president of the self-governing Kurdish administration in the north, announced the agreement at a joint press conference with U.S. Ambassador Zalmay Khalilzad and President Jalal Talabani. Barzani said he and Talabani had discussed the latest draft law by telephone with Prime Minister Nouri al-Maliki.

“We reached a final agreement,” Barzani said. “We accept the draft.”

Delay in adopting deal
There was no comment on the announcement from Khalilzad or Talabani, and Barzani did not elaborate. It was unclear whether new concessions had to be made to win his approval.

Al-Maliki’s government had promised to enact a new oil law by the end of 2006 but missed the deadline due to objections from the Kurds, who wanted a greater role in awarding contracts and administering the revenues.

The Cabinet discussed the draft Thursday but failed to agree. Once the Cabinet signs off, the measure goes to parliament for final approval once the legislators return from a recess early next month.

Opening doors to investment
The Bush administration, facing growing pressure to end the Iraq conflict, has been urging the Iraqis to finish the new oil law.

A new law is needed, most outside experts believe, to encourage international companies to pour billions into Iraq to repair pipelines, upgrade wells, develop new fields and begin to exploit the country’s vast petroleum reserves, estimated at about 115 billion barrels.

According to Iraqis familiar with the deliberations, the draft law would offer international oil companies several methods to invest, including production-sharing agreements. Those would give U.S. and other international companies a substantial share of the oil revenues to recover their initial investments and then allow them big tax breaks.

That angers some Iraqis, who believe foreigners will get too much control of the nation’s wealth.

Power struggle
But the biggest battle is over who gets the most say in awarding contracts and managing the revenues. The Kurds, who have run their own mini-state in the north since 1991, want regional administrations to have a bigger role.

Most of the country’s proven oil reserves lie in the Kurdish north or the Shiite south, which also wants to establish a self-ruled region. That has led the Sunnis to demand more power for the central government, to assure them a share of the wealth.

To win Kurdish approval, the current draft gives a major role to the regional administrations in awarding contracts but allows a committee under the prime minister to review them.

To satisfy the Sunnis, oil revenues would be distributed to the 18 provinces based on their populations — not on whether they have oil. It’s unclear whether Sunni Arabs would accept a population-based formula since they have consistently challenged figures showing them as a minority.

While the Kurds want more control of revenue generated from their fields, others think the new proposals give the regions too much control.

If implemented, “The balance of power in the management of Iraq’s oil and gas resources would have shifted alarmingly from the center to the regions,” Tariq Shafiq, a former oil official who helped draft the first version, said in Amman, Jordan, this month.