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IRAQ - Wrangling Over Petroleum Law.

Senior Iraqi officials on Nov. 23 resumed negotiations to try to resolve a dispute over a bill intended to encourage foreign investment in the oil and gas industry. Reuters on Nov. 21 quoted Deputy PM Barham Saleh as saying: "The Oil Committee is going to resume its meetings on Thursday (Nov. 23) to discuss the Oil Law. Signing contracts remains a matter of dispute". He said there was still debate about whether regional governments should be able to sign contracts with foreign oil firms without the approval of the central government in Baghdad.

Oil Minister Hussain al-Shahristani has said his office must have ultimate control over Iraq's vast oil reserves and has criticised deals already signed with Norwegian and Turkish firms by the autonomous Kurdish regional government (KRG) in Arbil. Kurdish Prime Minister Nechirvan Barzani has hit back in turn, defending his constitutional rights in the sector.

Control of the world's third largest oil reserves divides Iraq's three main communities, the Sunni Arabs and the Shi'ites and the ethnic Kurds. Most of the existing oil reserves lie in the mainly Shi'ite south and close to Kurdistan in the north. The issue of who has the power to sign contracts - the provinces or the national government - is critical because a major regional say will devolve more power over resources to Iraq's majority Shi'ites and the Kurds than the national government.

Minority Sunni Arabs, the dominant group under Saddam's Ba'thist dictatorship, fear regional devolution will leave them with nothing in terms of existing oil reserves. But the Sunni Arab Triangle which includes the north, the west and the centre, is potentially rich in oil and gas as well as other minerals such as phosphates. The western province of Anbar is said to be rich in natural gas. The Mosul region is rich in oil. The western areas bordering with Syria are rich in phosphates. The northern province of Salahuddin is partly rich in oil, including a giant field called Saddam. East Baghdad is a super-giant oilfield which needs re-exploration and can be a major producer.

Saleh, a prominent Kurd now in charge of petroleum and energy economics, said earlier this month the petroleum legislation should be enacted by end-2006. He chairs a government committee on oil and energy policy, composed of key ministers, which had struggled to overcome deep differences on the components of a new law to replace provisions dating from the rule of Saddam.

Oil Minister Shahristani, a Shi'ite close to Grand Ayatullah Ali al-Sistani, insists his office must have ultimate control over Iraq's petroleum reserves. But some of Shahristani's fellow Shi'ites oppose his desire to centralise control and would like to see more power for the regions.

Ashti Hawrami, the Kurdistan region's natural resources minister, was on Nov. 22 quoted as saying: "I'm optimistic about reaching an understanding between the two sides... This understanding will be on the basis of the permanent Iraqi constitution". (See Hawrami's background in ood3-IraqOilSep25-06 & fap3-IraqKurdistanSep11-06).

Years of UN sanctions, mismanagement under Saddam and now daily violence since the March 2003 US-led invasion have severely degraded Iraq's petroleum sector and it now needs many billions of dollars of capital investment. Sabotage attacks have made Iraq's northern export pipeline unusable for most of the time since the invasion so Baghdad relies mostly on its main southern Basra oil terminal for exports.

Oil ministry spokesman Asem Jihad on Nov. 22 was quoted as saying crude oil exports then stood at 1.7 million b/d. This meant the country's crude oil production was less than 2.4 million b/d.

Saleh, who before the US invasion was prime minister of the Talabani's eastern sector of Kurdistan and a top figure in the latter's Patriotic Union of Kurdistan, has said Iraq aims to double exports by 2010 and raise output to 6 million b/d. Major oil companies are waiting for the oil investment law to set out the regulatory framework before they commit capital, technology and human resources; but analysts say, even then, violence and insecurity are likely to delay investment, perhaps for years to come.

Jihad said formation of an oil company for the southern province of Maysan, which includes oilfields around Amara, had already been approved by the cabinet, and the provinces of Wasit and Kirkuk would also get their own companies, though they would be "fully supervised by the oil ministry" of Baghdad. Shahristani told state TV Iraqiya any province producing at least 100,000 b/d of crude oil would have its own oil firm. Another Iraqi official said the new petroleum law would call for re-establishing the Iraq National Oil Company (INOC), as an integrated holding group with affiliates that could be defined geographically, technically or along both lines. Their role would be to operate the oilfields.

Jihad said Iraq planned to open the bidding for contracts to build three major oil refineries at the beginning of next year. He said the refineries in question were to be built at al-Nahrain, near the southern city of Kerbala, with a capacity of 140,000 b/d; at Nasiriya in the south, with a capacity of 300,000 b/d; and at Goya in the northern province of Sulaimaniya, with a capacity of 70,000 b/d.
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Publication:APS Diplomat Operations in Oil Diplomacy
Geographic Code:7IRAQ
Date:Nov 27, 2006
Previous Article:IRAQ - Towards An Exit Strategy.
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