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Analysis: Oil not part of new Iraq laws

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by Ben Lando
Houston (UPI) Feb 14, 2008
The Iraqi Parliament's ability Wednesday to approve a package of three key laws does not necessarily translate into a reconciliatory atmosphere necessary for progress on a controversial oil law, despite the wants of Big Oil companies to have a more solid legal grounding before signing deals for which they are lining up.

Parliament was finally able to make quorum, and the $48 billion budget for this year, the release of detainees accused but not charged of lower-level crimes, and a law outlining some powers of Iraq's provinces, wrapped into one, was barely approved.

Though the Bush administration immediate praised it, the package instead merely postponed crucial discussions to shape the future of the country and highlighted the fractured state of Iraq's government: Iraq's Kurdistan Regional Government will get the disputed 17 percent of the revenue not used by the federal government, but opponents said it was too much and the 2009 budget would be different.

Provinces will be clearer on their administrative powers but, against the wishes of the Kurds and the Islamic Supreme Council of Iraq, a timeline for provincial elections was forced into the law. Both will be grounds for heated arguments later this year.

"These laws had to be passed to keep the machinery going and allocate the appropriate funds to various constituencies," said Rochdi Younsi, Middle East analyst for the business risk firm Eurasia Group. Only 164 of 275 members showed and an 82-82 tie was broken by the speaker.

Perhaps the most divisive issue in Iraq has still not been directly tackled: who controls the oil and how the proceeds will be distributed.

"The hydrocarbon law is a long-term issue and the current parliament is too fragile to handle a debate on it," Younsi said. "The government would rather avoid any additional crisis by claiming that the law that Saddam Hussein put in place is still valid. That law is so vague that it allows the ministry to offer pretty much any kind of deals with very little scrutiny. At the end of the day, the super majors will wait longer for better conditions."

Iraq has the world's third-largest proven oil reserves -- and natural gas nearly to match -- and oil exports fund most of the federal budget. Most of the country is underexplored and decades of war, sanctions and abuse by Saddam Hussein have increased the need for investment.

A new oil law, called for in the 2005 Constitution, is being touted -- especially by the Bush administration -- as necessary to improve governance of and facilitate investment.

Negotiations have been ongoing for more than a year. Parliamentarian Abdul-Hadi al-Hasani said four versions were sent to Parliament's Energy Committee, of which he's deputy chairman.

The KRG wants strong local control while most of Iraq favors central control, and there's dispute over the extent international oil companies should be given deals instead of Iraqi workers.

Neither side appears ready to bend, each claiming the Constitution is on its side.

The KRG passed its own law last August and has signed dozens of contracts with international oil firms since, including a deal with a South Korea consortium Wednesday, according to media accounts.

Baghdad has called the deals illegal, threatens to keep out of the rest of Iraq any firms with KRG deals and has cut off oil sales to two already, South Korea's SK Energy and Austria's OMV.

The Oil Ministry is negotiating the transfer of equipment and training to increase production at five key oil fields with Shell, BP, ExxonMobil, Chevron and Total. Those fields and others will be included in a bidding round for longer-term contracts later this year.

The oil law is to be accompanied by three related laws: a reorganization of the Oil Ministry, the reconstitution of the Iraqi National Oil Co. and a law governing the sharing of revenues, most of which are oil. All three are slightly less controversial but further behind the legislative process.

"We have stated that we are interested in pursuing those when the conditions are right," Shell Gas and Power Executive Director Linda Cook said, "conditions meaning safety and security of our own staff plus making sure that we're doing it in accordance with the laws that would be enacted by the country including the new oil law which has yet to be put through final legislative approval."

ExxonMobil Corporate Vice President Daniel Nelson, also speaking in Houston at the annual international energy conference CERAWeek, said: "My guess is every international oil company in the world, knowing Iraq is blessed with terrific god-given natural resources, is interested in Iraq. I'm not giving any competitive secrets away there."

While security is crucial, Nelson added, "more important is you have confidence you have a system of laws and a system of fiscal stability that's going to be together for not only the 6,7,8,9 years that it takes from the time you start up working in a venture to the time you have significant production and through that 30-year period you really need to get the returns back."

Iraq's Parliament, mired in sectarianism amidst ongoing security problems -- both situations which rests at least in part on Washington's shoulders -- has made little legislative progress of late. It approved a new flag and changed restrictions on former members of the Baath Party.

On Tuesday, the speaker of Parliament threatened to dissolve the legislative body after tensions spiked. But Wednesday's procedural moves found agreements, however tentative, across party lines.


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