Kurdish Leader: Oil Law Is a Deal Breaker

Editor's note: The supplemental defense bill President Bush vetoed last week required the passage of an oil law as a "benchmark" for continued U.S. support. A draft of a new bill expected to be passed by Congress has similar language.

To Iraq's Kurdish leadership, the issue of how to apportion the third-largest pools of oil in the world is "a make-or-break deal" for the country as a whole, a top official told United Press International.

"The oil issue for us is a red line. It will signify our participation in Iraq or not," Qubad Talabani, son of Iraqi President Jalal Talabani and the Kurdistan Regional Government's representative to the United States, said in an interview from his Washington office.

The KRG and the central Iraqi government reached a deal in February on the hydrocarbons framework -- though not on other key companion bills -- and a self-imposed deadline of late May seemed possible to meet.

But the Iraqi Oil Ministry, at a meeting it set up last month in Dubai, in the United Arab Emirates, with other Iraqi oil experts and politicians, unveiled the annexes to the hydrocarbons law -- its list distributing control of oil fields between central and KRG control -- and a law reestablishing the Iraq National Oil Co., which Kurdish leadership automatically rejected.

"This sets us back to square one, a point that's unacceptable to us. We're trying to modernize Iraq, build a new Iraq, built on new foundations, new policies. The symbol of this new Iraq will be how it manages its oil infrastructure," Talabani said. "And if people want to revert back to Saddam-era policies of a state-controlled oil sector with no accountability, with no accountability to the parliament or the people of the country, with no oversight except from one or two, then I'm sorry, that is not the Iraq that the Kurds bought into. That is not the Iraq that the Kurds would want to be part of."

"If a centralized oil regime is imposed on us, we will not participate in the state of Iraq," Talabani said. "And we have to make it absolutely clear to our friends in Washington, to our brothers in Baghdad, this is a make-or-break deal for Iraq."

He said Iraq needs to embrace the free market and break free from the nationalized mindset. Numerous oil and Iraqi experts as well as key Iraq oil union leaders have told UPI that Iraqis see nationalized oil with pride. And opponents of the oil law also say it gives too much to foreign companies.

The Kurds, however, have little to show from the Saddam Hussein era, aside from persecution, death and little investment in its economy or oil sector. They gained autonomy in 1991 and, governing an autonomous three-province region now, are prospering. Airplanes fly internationally from the airport in Irbil, Iraqi Kurdistan's capital. Violence in the region is relatively nil compared with the rest of the country, though the first major attack in more than four years killed 14 people in Irbil Wednesday. Despite lacking the law, the KRG has signed multiple deals with foreign companies to develop its oil and natural gas sector.

Iraq only produces about two million barrels per day. With investment -- domestic or foreign -- Iraq's 115 billion barrels in reserves could handle much higher output.

Many of the arguments over the law are related to the 2005 constitution. It was written vaguely to garner support. Now there is a dispute as to which oil fields are to be governed by the central government and which by the regions.

Tariq Shafiq, an Iraq oil expert now living in Amman, Jordan, and drafter of the original law last summer, said the Iraq National Oil Co. should be independent of the oil ministry, and regions could choose the company's board of directors. (Shafiq has since come out against the law, saying it has been altered too much in negotiations.) He said Iraq needs a central strategy for the best management of the country's oil.

Talabani said the KRG favors an INOC limited in scope and open to foreign investment, and says the current law gives INOC control over 93 percent of Iraq's oil. "This will hamper needed investment," he said.

"It's only by bringing in the biggest and the best from the international community, to partner with, not to steal, but to partner with the Iraqi government, can we develop Iraq's oil accordingly," Talabani said. "And there's a worrying unwillingness to act under a free-market-style concept here. It won't go through. It won't go through the parliament this way. There will be too many people opposed to it."

Other bills needing to be passed include a reorganization of the oil ministry and the revenue-sharing law. Talabani said there were lingering fears Kurds will again be deprived of funds and investment.

"We want to create an automatic payment mechanism where it doesn't rely on the goodwill of the finance minister or the oil minister for the regions to get their fair share," he said.

"Trust is lacking in Iraq, and unfortunately it's been Iraq's miserable history that has created this system, this society that mistrusts each other, which is why something as critical as oil can be a trust-building measure," Talabani said. "By putting in place mechanisms and institutions that can ensure that I will not get robbed again, that my resources will not be used against me again, will eventually over time build my trust."

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