NYT : Iraqi Cabinet Approves Draft of Oil Law

Iraqi Cabinet Approves Draft of Oil Law

By EDWARD WONG | February 26, 2007

BAGHDAD, Feb. 26 — The Iraqi cabinet approved a draft of a law today that would set guidelines for countrywide distribution of oil revenues and foreign investment in the immense oil industry.

The endorsement marked a major agreement among the country’s ethnic and sectarian political blocs on one of Iraq’s most divisive issues.

The draft law approved by the cabinet allows the central government to distribute oil revenues to the provinces or regions by population, which could lessen the economic concerns of the rebellious Sunni Arabs, who fear being cut out of Iraq’s vast potential oil wealth by the dominant Shiites and Kurds.

The law also grants regional oil companies the power to sign contracts with foreign companies for exploration and development of fields, opening the door for investment by foreign oil companies in a country whose oil reserves rank among the world’s top three in size.

Iraq has 80 known fields, 65 of which will be offered up for bids for development contracts once the draft law is approved by the Iraqi Parliament, said Hussain al-Shahristani, the Iraqi oil minister. The 275-member Parliament is in recess but is expected to look at the draft once it reconvenes next month, Mr. Shahristani said. Ahead of today’s cabinet vote, the main Sunni, Shiite and Kurdish political blocs had agreed to work together to ensure that the law passes Parliament in an expeditious manner, he added.

Since last year, senior Bush administration officials and top American commanders here have said a new oil law is crucial to the country’s political and economic development, and they have been pressuring Iraqi leaders to make passage of the law a priority. In recent weeks, Ambassador Zalmay Khalilzad, the senior American envoy here, has been in intense talks with Kurdish leaders in the north to overcome their objections to the draft. Iraqi officials say Mr. Khalilzad’s negotiations were crucial to winning unanimous cabinet approval today.

Since the American-led invasion of 2003, Iraqi politics has often been split bitterly along ethnic and sectarian lines, and that kind of conflict could still stall passage of the oil law in Parliament. Drafts have been debated for months by a committee overseeing the writing of the law before the cabinet finally approved it.

“At the end of the day, we all supported this thing because it’s workable for all the parties and is all-inclusive,” said Barham Salih, a deputy prime minister and the head of the committee.

Several members of the committee said in interviews that they were confident that Parliament would ultimately endorse the law, but perhaps only after heated arguments.

“It will be tough,” Mr. Salih said. “I want to admit it and I want to recognize that. It will be an interesting roller coaster, my friends.”

The writers of the draft law tried to balance regional control of oil versus oversight by the central government, an issue directly tied to the widening violence in Iraq.

The minority Sunni Arabs, who ruled Iraq for decades before the toppling of Saddam Hussein and are now leading the insurgency, have chafed at rule by the Shiites and Kurds partly because they fear those two groups might hoard oil wealth for themselves. Most of Iraq’s crude oil reserves lie in the Shiite south and Kurdish north. Sunni Arab leaders have resisted attempts by the Kurds and some Shiite politicians to create laws allowing for greater regional autonomy.

The draft oil law says that all revenues from current and future oil fields will be collected by the central government and redistributed to regional or provincial governments by population, in theory ensuring an equitable distribution of oil. This could help calm Sunni Arabs hostile to Kurdish and Shiite autonomy.

The attitudes of Sunni Arabs could also soften if more oil exploration is done on their lands. Iraqi officials recently increased their estimates of the amount of oil and natural gas deposits on Sunni Arab territory after paying tens of millions to foreign oil companies to re-examine old seismic data across the country and retrain Iraqi petroleum engineers.

The drafters of the law reached agreement on the principle of revenue-sharing fairly early in the process. Much more contentious was the issue of signing oil contracts. The Kurds, who have enjoyed de facto independence in the mountainous north since the Persian Gulf war ended in 1991, argued strongly for regional governments to have full power in signing contracts with companies to develop oil fields. Sunni Arab leaders insisted on keeping this power in the hands of the Oil Ministry, and the Shiites fell somewhere in the middle.

The draft law has a compromise: regions can enter into contracts, but a powerful new central body called the Federal Oil and Gas Council would have the power to “prevent” the contracts from going forward if they do not meet certain prescribed standards, Mr. Salih said. A panel of oil experts from inside and outside Iraq would advise the federal council on the contracts.

Much of the wrangling over the draft law stemmed from the minutiae of language. Kurdish leaders insisted that the law not give the federal council the power to “approve” contracts signed by the regional governments. The council should only be able to “reject” contracts, the leaders said. In the end, Kurdish and Arab leaders compromised by agreeing to give the federal council the power to “prevent” contracts, Mr. Salih said.