Iraqi Kurds Sign New Oil Deals

By Ben Lando, UPI. Posted October 3, 2007.

Iraq's Kurdistan Regional Government made a sudden but not unexpected announcement Tuesday it had signed four more controversial oil deals. While the move highlights success in the region, it comes as the central government in Baghdad struggles to meet long-term agenda items like a national oil law.

Iraq's government reacted to the news in the same vein it has to similar deals in the past: criticizing the KRG for a perceived unilateral move in an oil sector lacking needed identity and saying it is fueling the fire separating KRG-Baghdad compromise.

The KRG released a statement Tuesday that it had approved four production-sharing contracts for exploration and production in the region. It had signed two of them already, with Heritage Energy Middle East Ltd., a subsidiary of the Canadian firm Heritage Oil and Gas, and Perenco Kurdistan Ltd., a subsidiary of Perenco S.A. of France.

The other two will be announced "shortly," the statement said, and there will be more deals to follow. Last month the KRG signed a production-sharing deal with Dallas-based Hunt Oil and at the time said more were in the pipeline.

"The projects will spearhead international investment for the whole of Iraq," KRG Natural Resources Minister Ashti Hawrami said in the statement, which also said two deals were reached for new oil refineries in the KRG area, one with Heritage and the other with the Taq Taq Operating Co., a joint venture between Turkey's Genel Enerji and Canada's Addax Petroleum. Hawrami said the exploration deals will lead to more revenue in Iraqi coffers and the refineries will ease the fuels shortage Iraqis suffer from.

But the move is controversial for many reasons:

The central government hasn't approved a federal oil law that will set the guidelines for foreign investment and the roles of the federal/regional/provincial governments in Iraq's oil sector. Disagreements on both now hold up the law in Parliament.

Parliament has not even received a revenue-sharing law, which saw limited agreement in June but has been stuck in the Council of Ministers, which must first approve it. Iraq's oil sales brought in more than $31 billion last year -- 93 percent of the federal budget -- and exactly how that money is collected and dispersed is as hot of an issue as the oil law. Both go directly to the core of what a new Iraq will look like.

The production-sharing contract, also called a production-sharing agreement, is preferred by international oil companies. The company invests in exploration but gets a guaranteed chunk of the oil and can put the reserves on its books. Iraq's oil unions have led the charge against such a contract, saying it will stop production if it is included in the national oil law.

"It is unfortunate, really, the behavior that's taking place by the Kurdistan region," Abdul-Hadi al-Hasani, deputy head of Parliament's Energy Committee, told UPI. "They're supposed to wait until the oil and gas law is to be passed by the Parliament."

"It will definitely be some sort of hindrance," he said, adding a critique of the production-sharing contracts and blaming the KRG for delaying the national law.

Iraqi President Jalal Talabani met with U.S. President Bush in Washington Tuesday. The two threw their weight behind, among other things, oil legislation. An agreement on that, the theory goes, would lead to overall political and sectarian reconciliation.

"I think sooner or later it has to be addressed (in Parliament)," Hasani said about the KRG-Baghdad row over the national oil law. "It will be after mid-October."

But Parliament's focus right now is on creating regulations for private security firms, a response to the Blackwater incident, and countering legislation by Sen. Joseph Biden, D-Del., that called for a decentralized, federal Iraq, which met heated debate there (outside the KRG).

Tensions between Baghdad and the KRG grew as the yearlong oil law negotiations continued. They severely escalated after the KRG announced the PSC with Hunt Oil, the first U.S. firm to enter Iraq since the war and the first contract since the Kurds passed their own regional oil law. Iraqi Oil Minister Hussain al-Shahristani immediately called the deal "illegal" and said only the first four of the nearly 10 deals the KRG signed would be upheld.

The KRG responded in measure, saying Shahristani should either work harder to pass a federal law or resign. The KRG is a semiautonomous region in the north. Its own security force protects the area, which has seen little violence compared with the rest of the country since the war. As a result, it has had modest economic development and eyes the potential of the oil sector as a major step toward progress.

"It's just a confirmation that KRG leaders are growing more and more impatient with the political process in Baghdad and they're determined to move forward with their own plans for economic development," Rochdi Younsi, Middle East analyst for the business risk firm Eurasia Group, told UPI.

"As far as they're concerned they have their own legislation and the principle of federalism," Younsi said. "In their mind there is no contradiction between all these deals they're about to announce and the Iraqi law, Iraqi Constitution."

He said Baghdad has little maneuvering room. Most of Iraq's proven and probable reserves are located in areas controlled by Iraq's Shiite majority, which leads the government; it can't without the Kurdistan Alliance on their side in Parliament.

Meanwhile most major oil firms are staying away from the KRG, fearing they'll be cut by Baghdad from the more lucrative rest of the country.

But as time goes on, if Iraqi Kurdistan's success keeps its current outpace of the rest of Iraq, it will keep on signing deals.

"I think there will be more to come," Younsi said. "(The KRG) has potential of becoming a little Kuwait up there."

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