Ben Lando

Iraq Oil Deals Near Completion

Iraq's Oil Ministry, in talks with oil majors to boost production in crucial fields, may give long-term deals to firms that offer technical support.

This comes as Baghdad is preparing a first round, though somewhat cloudy in details, of bidding and negotiated contracts to improve its struggling oil sector.

Oil Minister Hussain al-Shahristani told Argus Media on the sidelines of the OPEC meeting in Vienna that all deals would be fully transparent. Work would be carried out by Iraqi workers, he said. There are no legal controls, though, and without it and the re-establishment of the Iraqi National Oil Co. the country's oil sector is moving away from being nationally controlled.

Officials from the world's largest oil companies have been meeting with Iraqi Oil Ministry officials in Amman, Jordan, to fix the terms of technical support contracts. Such contracts, which are shorter-term deals, will "help Iraq fast track the purchase of necessary equipment and train the Iraqi people to install them," Shahristani said.

He said those companies will be favored in a bidding round for longer-term contracts on the fields -- some of Iraq's largest producers -- set for later this year, Argus reports. Another bidding round is expected to take place next year.

Iraq produced about 2.3 million barrels per day in December and intends to hit 2.8 million bpd in two years, a projection based on enhancing currently producing fields. Iraq's oil sector, the third-largest in the world, manages despite years of misuse by Saddam Hussein, U.N. sanctions and the ongoing war. It needs tens of billions of dollars of investment and Iraq's government chronically been unable to invest its own capital budget, lacking institutional capacity.

It has no official oil law, relying on a Saddam-era law and controversial laws of the Kurdistan region. A national oil law has been stuck in negotiations for a year, largely over disputes between the national and Kurdish governments over who controls and directs the country's oil strategy.

The Kurdistan Regional Government passed its own oil law and has signed dozens of contracts to jump start its own promising oil sector. Shahristani calls the deals illegal and said any company who signs with the KRG will be kept out of the rest of Iraq. Oil sales to Korea's SK Energy and Austria's OMV have been halted.

There is also no agreement as to how much access international oil firms should have to Iraq's oil, nationalized since the 1970s.

Along with the oil law, a law governing revenue, reorganizing the Oil Ministry and reconstituting the Iraqi National Oil Company were to be approved, as a package. All are far from approval.

Now Baghdad is moving forward on signing the deals, which are needed to some extent to bring new technology to the sector and training to Iraq's oil workers. But the workers have warned against controversial production sharing contracts or any that takes control of the oil, and too much the profits, from Iraqis.

"National expertise and resources are capable of enhancing production in the oil industry," Hassan Jumaa Awad, president of the umbrella Iraqi Federation of Oil Unions, told United Press International during a visit to London in November, "if they are prepared to allocate more funding and spend the resources that already exist."

A U.S. Government Accountability Office report last month said it was unable to discern how much of the 2007 capital budget Iraq's government spent. It assessed the level of success after a dismal 2006.

The U.S. State Department said Iraq's central government spent 24 percent of its capital budget through July 15, 2007. The U.S. Treasury Department pegs it at 4.4 percent through August.

"The disparity between the different sets of data calls into question their reliability and whether they can be used to draw firm conclusions about the extent to which the Iraqi government has increased its spending on capital projects in 2007, compared with 2006," the report concluded.

Iraq's Oil Ministry, like the rest of Iraq, has seen a brain drain of qualified and trained technocrats. Many have fled the country, were purged during an ethnic cleanse or have been killed.

Iraqi Kurds Sign New Oil Deals

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."

Iraq to Privatize Electricity

Two of Iraq's many needs right now are more electricity and more investment. A law being drafted could satisfy both, paving the way for foreign and domestic private companies to build power plants, a step toward fully privatizing the electricity sector.

"It should be short coming," a senior U.S. official working in Baghdad on Iraq's electricity sector told United Press International on condition of anonymity on the sidelines of an Iraq energy conference.

A top legal adviser is working on it with the Electricity Ministry, the source said, adding it "could be" before Parliament before the year's end.

Others UPI spoke to refused to go on the record but confirmed the law was being worked on in a parliamentary committee as well, with the help of another U.S. official in Baghdad.

"Yes, we have plans for privatization," Iraq Electricity Minister Karim Waheed Hasan told UPI. "We have two projects which should be under execution very soon. We are planning to announce many stations, many power plants."

Earlier this year Iraq's Parliament approved an oil refinery investment law that gave special terms to the private sector to build refineries. Iraqis suffer from a fuel crisis largely associated with a lack of refining capacity.

The oil refinery law is the first step in a long walk toward fully privatizing the downstream oil sector, Oil Minister Hussain al-Shahristani told UPI after the law was passed. Many in Iraq's government, to some extent, are keen on splitting open the long-nationalized upstream sector as well.

The electricity law hasn't been made public, and details are unclear. Hasan said he hopes two power plants will be completed by next year and "in the future, yes," the entire sector will be privatized.

"I think there is nothing to stop having it privatized but still it needs more legal framework in order to get the satisfaction and assurances for the investor to go in this sector," said Ali al-Dabbagh, an Iraqi government spokesman.

Iraqis suffered through the summer heat with little power -- and what they got was inconsistent -- to power fans and air conditioners. (Backup generators were hostage to the fuel shortage.) Electricity generation reaches about 40 percent to 50 percent of demand, Hasan said during a presentation at the Iraq Oil, Gas, Petrochemical and Electricity Summit, organized by the London-based Iraq Development Program, though the sector has more capacity than demand.

Baghdad and Irbil provinces receive less than eight hours of power a day, while only Diyala and Dohuk provinces receive more than 16 hours, according to the presentation. Throughout the summer, however, regular reports from Iraq told of days on end without electricity.

Insurgents target the electricity sector, especially the towers and lines running between cities. From April 2003 through the third week of August 2007, at least 318 electricity sector workers were attacked, according to an expert in threats and vulnerability to the energy sector worldwide who spoke on the condition of anonymity. There were also at least 166 attacks on power lines and towers, stations and generators and substations. The expert cautioned that the numbers were likely very low, considering the number of incidents that aren't reported.

Also keeping electricity from Iraqis is the inability to power the power stations. Iraq as a whole suffers from a fuel shortage, and the electricity sector is no exception. Two-thirds of the natural gas Iraq produces, mostly as a side product to pumping oil, is flared off as waste because there's no infrastructure to send it anywhere that could use it, such as a power station.

Pipelines are also a frequent target of attack, cutting the supply of oil some power plants run on.

To fix this, Hasan is promoting his "master plan," which will quadruple the per capita consumption of electricity in Iraq (by giving more people more access to more power) by 2009 and increasing generating capacity by 60 percent by 2015. This would cost $25 billion, Hasan estimated.

But electricity and the oil sector are mutually dependent, since electricity is needed to power the refineries and pipelines and other aspects of the oil sector.

Kamal Field al-Basri, senior economic adviser to Iraq's prime minister and executive director of the Iraq Institute for Economic Reform, estimates the oil sector, hit by decades of abuse, misuse and sanctions, requires $56 billion to fully stand on its own feet.

Iraq's oil sales are the biggest earner for the country, making up more than 60 percent of the gross domestic product and funding more than 90 percent of the federal budget last year. But in a war zone, with more than 50 percent living in poverty and nearly that many unemployed, and a lack of quality-of-life services, the money is tight.

Many are looking outside Iraq for the funds.

"Iraq cannot generate the required investment internally, but we're looking for international support for that," Basri said. "We can satisfy about 42 percent of that need internally, but the rest we need from the international side" through grants, loans and other investment.

Not everyone agrees on what form that should take. Even the powerful and strongly nationalistic oil unions, which have vowed to defeat a proposed oil law because it gives too much to the private sector, say limited private investment is necessary.

There are many parties interested in keeping the oil sector nationalized but more willing to let the free market into other areas of the economy.

And then there's the United States, which, since the days of the Coalition Provisional Authority, has been helping Iraq reform its economy.

"There is some suggestion that we want to privatize and we are transferring from central government to market economy, which is needed," said Abdul-Hadi al-Hasani, deputy chairman of the Energy Committee in Iraq's Parliament. He said the electricity bill is "in the draft process."

Shia Parties Battle for Control of Oil-Rich Basra Region

Political parties and their militias are fighting for power over the Basra government, the oil sector it controls, and the oil and fuels smuggling that bring in extra funds.

The southern area, where much of Iraq's oil wealth is located and nearly all its oil exports are sent to market, has been under the purview of British troops, who have allowed various factions to become the power base and their armed outfits to flourish.

Now the British are leaving, and the intra-Shiite fighting that bloodied the streets and complicated provincial politics will explode. Even if U.S. troops, already stretched thin, are sent to mediate, the situation will likely not be calmed -- it will likely be inflamed.

"It's fundamentally related to the battle over oil," said Reidar Visser, editor of the Iraq Web site and an Iraq expert at the Norwegian Institute of International Affairs. "It's understandable, of course, given the size of the Basra reserves."

Nearly 80 percent of Iraq's 115 billion barrels of proven reserves -- the third largest in the world -- are buried in or around Basra. With the northern pipeline shut by attacks, most of the 1.6 million barrels of oil per day exported last year went through the port in Basra, bringing enough money to Baghdad -- more than $31 billion -- to fund 93 percent of the federal budget.

That makes control over Basra key. Whoever controls the provincial government -- and/or has strong enough militias -- has charge over the oil industry there and holds sway in the unknown amounts of oil and fuel sidetracked to the smuggling racket.

"The way things work in Iraq is if you have even a simple majority on the governing council, you get to elect the governor, the police chief, you get to put your militiamen into the police," said University of Michigan Middle East expert Juan Cole, "and the provincial government becomes a source of patronage for your party."

In Basra, three Shiite parties, powerful in their varied own right, swap allegiances and gunfire and jockey for position: the Fadhila Party, the Supreme Iraqi Islamic Council (formerly the Supreme Council for the Islamic Revolution in Iraq), and the Sadr Movement, led by cleric Moqtada Sadr.

The Fadhila Party gained control of the province in the 2005 elections, but only with 21 of 41 seats, and with a coalition of other parties and independents. SCIRI took the rest. Sadr has no official seats but loyalists.

All three began their power play, infiltrating the police and the bureaucracy. The Fadhila Party grabbed control of the oil facilities protection service, which put it "in a position to really control how much is or is not smuggled," said Ken Katzman, Middle East expert at the Congressional Research Service. "You can do whatever you want … it's control over the proceeds of the smuggling."

Exact figures are not known, but various estimates put smuggling of both oil and fuel past the billions of dollars mark, annually.

"That's money that the factions are going to control directly," he said.

When SCIRI and Sadr realized Fadhila was bringing in smuggling money, they wanted in. Smuggling isn't a new phenomenon; it was standard under Saddam Hussein's rule, usually with his approval.

Nor is it relegated to just political parties. Other militias and gangs are in it as well.

But the political parties have the most power. Fadhila cut a deal with its rivals.

"Their militias -- the Mahdi Army (Sadr), the Badr Corp (SIIC) and the Fadhila militia -- operate as paramilitaries in the city," Cole said. "They patrol neighborhoods, they fight turf wars for control of neighborhoods, they attack each other's party headquarters, and they are in particular competition for gasoline smuggling."

But politics in Baghdad have a direct relationship to the country's oil capital.

Prime Minister Nouri al-Maliki's government, struggling to stay in power, began unraveling when it replaced a Fadhila-supported oil minister with one the Supreme Council backed. Maliki is from the Dawa Party, closely aligned with the Supreme Council, now SIIC. Its United Iraqi Alliance government also included, among others, Sadr and Fadhila. Earlier this year Fadhila quit the UIA, in large part over losing the Oil Ministry, and Sadr left over disputes with Maliki. SIIC became more powerful and looked to Basra as Fadhila and Sadr militias (and the militia-heavy police) fought turf wars. It orchestrated a vote of no confidence in the Fadhila Party governor of Basra. A handover of power hasn't occurred yet. "Apparently, they'd have to actually fight militarily for control of the bureaucracy," Cole said.

The intra-Shiite fighting is something of a quiet storm, even class warfare, as politics in Baghdad tumbles on Sunni, Shiite and Kurdish factions' demands and U.S. forces focus on violence from, and often between, Sunnis and Shiites.

SIIC has the overt backing of Washington and, ironically, having grown up in Iran for more than two decades before the 2003 war, has the closest ties to Iran. It's the upper class of the Shiite party power structure.

The Fadhila and Sadr parties share a larger local power base, and although they are believed to have some tie to Iran, are very pro-Iraqi nationalist.

Fadhila has a stronger share of the upper working class, giving it a power base that got it elected in 2005.

The Sadr Party strength comes from "some really poor slums in Basra," said Cole.

It's "closest to the masses," said Rochdi Younsi, Middle East analyst at the business risk firm Eurasia Group, and its leader, "the Shiite Che Guevara," is rallying poor Shiites against Shiite, Sunni and U.S. adversaries throughout Iraq.

All three are to be watched as the British move their last troops. "Then we'll really be able to see … how did the politics play out on the ground, without the presence of a referee," Younsi said.

Kidnapped Oil Official Had Key Role

The Iraqi oil official kidnapped with four others Tuesday was in charge of Iraq's exploration and production, a key role especially for a Sunni, and a stark reminder that even the most needed aspect of Iraq's economy -- oil and the wealth it brings in -- is not immune from the horror of today's Iraq.

Abdel-Jabar al-Wagaa, a deputy minister and top assistant to the oil minister, was taken by a group of men in official uniforms and vehicles. There is no confirmation on the assailants, including whether these were from any Iraqi security force or militias dressed up.

Militias carried out a similar raid earlier this year at the Iraqi Finance Ministry. Tuesday's raid occurred in the afternoon, taken from their neighboring apartments in a housing complex of the State Oil Marketing Organization, where the other officials worked.

"This is a very sad story," former Oil Minister Issam al-Chalabi told UPI. He said he knew Wagaa, that the 62-year-old has a wife and other family. "He's been working in the ministry for quite some time now, over 30 years."

Chalabi said it is another in a series of blows to the ministry's expertise. "There's a continuous drain," he said. Wagaa, named deputy minister in 2004, may be a target because of his position, because he's a Sunni and not a Shiite Arab, or because of the tribe he hailed from, the Jibouri tribe from Mosul.

"Nobody can tell but it could be a combination of all these reasons," Chalabi said.

"This is really bad," a U.S. official familiar with Iraq oil issues told UPI on condition of anonymity. "This is a blow to the Oil Ministry. He was one of the few remaining Western-educated technocrats."

As a Sunni, Wagaa was in the minority in the new Shiite-dominated government in Iraq. Shiites make up the majority population in the country but were deprived of respective leadership roles under Saddam Hussein, a Sunni.

Sunnis have been routed out and excluded from the government, despite their expertise in technical issues, especially oil. The ranks in the ministry have been thinned of Sunnis and other technocrats, instead replaced by the connected and politicians.

Wagaa's position in the ministry was of heavy importance. The senior deputy minister in charge of upstream, all production, exploration, drilling and the North and South Oil Cos. were under his watch. He also had a role in the ongoing training sessions of oil officials and workers with international oil companies.

Iraq has 115 billion barrels of proven oil reserves -- much of which are not being pumped -- and experts believe nearly as much to be discovered.

At least three of the four others kidnapped held high-level roles in the Iraqi company that sells the crude, the SOMO. Iraq sent an average 1.6 million barrels per day of oil to international market last year, bringing in more than $31 billion, which filled more than 90 percent of the federal budget.

Mahdi al-Naqib was in charge of researching what type of crude was available and who it should be sold to; Salah Abdul Qadar was the director general for selling oil to Europe; and Kamel al-Ob'eidy was a top-level SOMO public relations official. UPI could not determine the identity of the fourth abductee.

No one has officially taken responsibility for the act. Media accounts and officials are hinting at blaming the Mahdi Army, or rogue factions of it, which are led by Shiite cleric Moqtada Sadr. The incident took place near Sadr City, a poor Baghdad neighborhood of millions. But it could be a cross sect hit, by Sunnis, or any number of actors in the violent power struggle unfolding in Iraq and other parts of the country.

Details remain sketchy still. The uniforms may be police or Interior Ministry forces, both of which are infiltrated by loyalists to Shiite militias of the Badr Corps, the armed wing of the Supreme Islamic Iraqi Council, one of the most powerful political parties in Baghdad and partner to Prime Minister Nouri al-Maliki's Dawa Party.

Considering the high profile of those captured, it likely was not a random snatch.

The perpetrators could have been allowed into the compound because they appeared to be official, or bribed their way in.

Less than three months ago armed men in police uniforms took five Britons from a Finance Ministry building, which is near the SOMO compound. They're still missing, as are many taken in a mass kidnapping Nov. 14, when the Mahdi Army was blamed for donning Interior Ministry garb and invading the Ministry of Higher Education.

Wagaa's kidnapping is the highest-profile job since last year, when in two separate instances the directors general of both the North Oil Co. and State Oil Projects Co. were kidnapped.

Neither has been found.

Kirkuk Vote Could Touch Off New Civil War in Iraq

A voter registration list of residents in Iraq's oil-rich northern disputed territories is to be completed by the end of July. It marks a long-awaited step for Iraq's Kurds, who claim the area was ripped from them by Saddam Hussein's policies.

Little noticed, however, amid the violence in the rest of Iraq, is the potential that a referendum for the disputed territories, especially Kirkuk, could be the match that ignites a powder keg.

More than 10 percent of Iraq's 115 billion barrels of proven oil reserves -- the third-largest in the world -- is located in the Kirkuk area. The city has been historically Kurdish, though Turkomen, Christian and Sunni and Shiite Arabs are far from strangers.

Kurds felt the brunt of Hussein's northern prerogative as he gassed populations and deprived the region of investment. And, as part of his Arabization program, he forcefully displaced them with his fellow Sunnis Arabs.

Iraq's Kurds looked to the post-Hussein era to reverse that. They demanded semi-autonomy during the formation of the government and the 2005 constitution. In an oil law now stuck in negotiations, Kurds want strong regional and local control over a large segment of the oil sector.

The Kurdish leadership has complained the federal government has been slow in enacting constitutional obligations to bring back to the disputed territories Kurds who were displaced, verify eligible voters and, by the end of this year, hold a referendum.

"There is still a lot of disappointment," Qubad Talabani, the son of Iraqi President Jalal Talabani and the Kurdistan Regional government's representative to the United States, told United Press International earlier this month. "There is slow progress or lack of progress made in normalizing Kirkuk."

If approved in the referendum, the territories would be part of the KRG.

The KRG maintains the debate is about nothing but righting past wrongs and uniting an ethnic nation. Not all agree. Violence in the area has kicked up as of late as the referendum draws close. Sunni insurgents who have rendered useless an oil pipeline from Kirkuk to Ceyhan, Turkey, are now blamed for targeting Kirkuk's residents.

The latest and deadliest was three suicide car bombings Monday that killed more than 85 and injured nearly 200; the largest was outside the Kirkuk offices of Talabani's Patriotic Union of Kurdistan. Attacks have also escalated in the relatively safe KRG region.

Opponents of the referendum aren't limited to inside Iraq. Looming largest is Turkey, which already has amassed troops on its border with Iraq as it continues to threaten an invasion.

Turkey's bombs fell in northern Iraqi areas where Ankara claims rebel Kurdistan Workers Party bases are located. Media reports say no one was killed, but residents of the town of Zakho, Iraq, fled the violence. Turkey says the PKK, which wants a separate state, plans and executes attacks in Turkey from Iraq. The bombing came after three Turkish soldiers were killed by a landmine near Iraq's border. And it's fodder for Sunday's Turkish national election, which used anti-PKK sentiment as a steady campaign platform.

Iraq has warned against such an invasion and condemned the bombings. The United States, late to address the Turkey-Iraq beef, has appointed an envoy to focus on the PKK and is trying to mediate a lasting truce.

Decision-makers in Washington have yet to move the issue of Kirkuk and other disputed territories up on their Iraq agenda despite recommendations from international reports and studies President Bush ordered.

In its Dec. 6 report, The Iraq Study Group, co-chaired by former Secretary of State James Baker and former Democratic Congressman Lee Hamilton, called for an "international arbitration" on the issue.

"A referendum on the future of Kirkuk … would be explosive and should be delayed," the report recommended.

"With all sides dug in and the Kurds believing Kirkuk is a lost heirloom they are about to regain, the debate should move off outcomes to focus on a fair and acceptable process," the Brussels-based International Crisis Group recommended in an April report. "For the Kurds, that means postponing the referendum, implementing confidence-building measures and seeking a new mechanism prioritizing consensus."

The ICG blamed Washington for ignoring the Kirkuk issue while implementing the troop surge. Hold a referendum, civil war spreads to Kirkuk and Iraqi Kurdistan, the report assessed. Postpone it without a Kurd-approved deal, the government in Baghdad could implode. It recommended the United States and international allies move toward an alternative that calms Ankara's nerves and cements Kurds' power in a federal Iraq via a now stalled oil law.

Turkey fears a larger and stronger Iraqi Kurdistan would embolden its own sizeable Kurdish population to demand autonomy, as do Iran and Syria. All three, along with Iraq, could oppose any country of Kurdistan.

"Thus, what the Kurds have seemingly gained, albeit largely through peaceful negotiations and skillful political horse-trading, could be lost to internal violence and external military action," the Public International Law & Policy Group wrote in a report last month. The report didn't call for the referendum to be held or stalled; rather, it recommended a nuanced political and constitutional compromise.

To Iraq's Kurds, however, questioning the referendum is a non-starter. The outcome, if it's held, is likely to be dominated by pro-KRG Kurdish voters, and the aftermath would be realized in a more robust Iraqi Kurdistan.

It's a semblance of democracy in today's Iraq, but a dichotomy of reality and what President Bush promised in an April 2003 address to Iraq's citizens: "You will be free to build a better life … free to join in the political affairs of Iraq. And all the people who make up your country -- Kurds, Shi'a, Turkomans, Sunnis, and others -- will be free of the terrible persecution that so many have endured."

Opposition to American Oil Grab is Unifying Iraqis

U.S. President Bush may be right: Iraq's oil law, although highly controversial, could be a "benchmark for reconciliation."

When Iraq's council of ministers last week suddenly approved the law, critics of various stripes united in opposition. Shiite and Sunni political parties alike denounced it, vowed to defeat it, even threatened to ensure Parliament can't take it up. It is seen by some as weakening the central government and giving too much to foreign companies.

Iraq depends on the sale of oil for the vast majority of its federal budget. It's infrastructure badly needs investment to boost production. A law governing the world's third largest reserves -- and a sizable amount of natural gas -- has been as elusive as security there.

In one attack alone Saturday in the northern city of Tuz Khurmato, nearly five times as many were killed than at the Virginia Tech massacre in the United States.

In the midst of a war zone of more than four years old, the Bush administration itself could be the most divisive agent. And, it's the White House's support for Prime Minister Nouri al-Maliki's administration, as well as the heavy pressure on it to pass the oil law, that could draw together the fractured country.

The fate of and fight for control over Iraq's oil is the same for the country itself. At issue is to what extent the federal government, as stewards of Iraq as a whole, will decide oil policy. Local governments, especially the Kurdistan Regional Government, disapprove of strong central control; their suspicions rest on memories of Saddam's Iraq, where the central government's uneven investment hand benefited only some, and its heavy hand brutalized the rest.

Much more oil is in the ground than being pumped now, that's likely why a law governing the oil has been held up in the United States as the tool for grand compromise, leading toward the path of more hand-shaking.

President Bush himself, as well as U.S. Ambassador Ryan Crocker, Vice President Dick Cheney and Defense Secretary Robert Gates, in separate meetings in Washington and Baghdad are all regularly urging the passage of the law.

KRG and federal government negotiations on the oil law began last summer. Deals were reached and stalled since late February. Then Tuesday the ministers approved it.

"It has to be a package of laws in which all the Iraqis can agree, which is why it is a benchmark of national reconciliation," a State Department official told UPI in May, adding that's why revenue sharing is the main emphasis of the U.S. government. Revenue sharing would be decided in a revenue sharing law, not the oil law, two of four laws that comprise the package. The revenue sharing law is to be taken up this week by the ministerial council.

The oil law already faced opposition from Iraq oil experts -- including two of the law's three original authors -- as well as the powerful oil unions. The unions say they're willing to stop production and exports if the law gives foreign oil companies too much access to or ownership of the oil.

"The last four years have witnessed repeated attempts at dismantling the basis for any well planned resources management for the whole nation, only to replace it with market oriented destabilization and fragmentation policies that are at variance and in competition with each other and the national interest," said Tariq Shafiq, an Iraqi now living in Amman and London, tasked last spring by the Iraq oil minister to co-write the law. It was subsequently altered in negotiations and he now opposes it.

"Would this law really optimize the management of the oil and gas? Would it really unite the country?," Shafiq said. "I believe sincerely it is naive to think it would."

"It's really important to challenge the notion that the law is going to unite 'warring factions,'" said Ewa Jasiewicz of the London-based campaigner Platform. "The language in which the law is being couched and reported is incredibly sectarian and is creating de facto Sunni, Kurdish and Shiite regional power blocks in the imagination and political landscape and, in the process, the conditions for the creating of these kinds of facts on the ground."

Many political parties opposed Maliki's government before the oil law. As security in Iraq diminishes, so does the political strength of Maliki's coalition of Shiites -- many backed by Iran -- and Kurds.

The ministerial council just barely had quorum last week because of boycotts of key Shiite allies and Sunni parties. Parliament was supposed to take up the oil law Wednesday but boycotts and chronic absenteeism scrapped that.

The Sadr Movement and the Iraqi Accord Front now say they may end the boycott specifically to challenge the law. The former held mass rallies over the weekend in opposition to Maliki. IAF says it will call for a vote of no confidence in him.

The Association of Muslim Scholars issued an edict against any Parliamentarian approving the law. Off the record talk by campaigners, unionists and oil experts express the need to turn up the heat of opposition.

Last week the Iraq Freedom Congress -- whose motto is "Working for a Democratic, Secular and Progressive Alternative to both the U.S. Occupation and Political Islam in Iraq" -- teamed up with the new Anti Oil Law Frontier to rally masses against the law.

All the while a coalition in Iraq grows. It encompasses Shiites, Sunnis, Kurds and secularists. Its goal is to keep Iraq together. But it also wants an end to the U.S. occupation.

"They are also strongly opposed both to the terrorist forces of Al Qaeda in Iraq (AQI) and to the growing influence of Iran in Iraq," Robert Dreyfuss wrote of the opposition in The Nation.

Despite sharing two key tenets of the war on terrorism, the United States isn't supporting the coalition.

State Department Iraq Coordinator David Satterfield, answering questions in March about what has been self-termed the "National Salvation Government," vowed support for Maliki's government. "It is not helpful to talk about alternatives," he said.

But alternatives may force themselves into the conversation, especially on the heels of the oil law.

Iraqi Troops Face Off Against Striking Oil Workers

On the third day of an oil strike in southern Iraq, the Iraqi military has surrounded oil workers and the prime minister issued arrest warrants for the union leaders, sparking an outcry from supporters and international unions.

"This will not stop us because we are defending people's rights," said Hassan Jumaa Awad, president of IFOU. As of Wednesday morning, when United Press International spoke to Awad via mobile phone in Basra at the site of one of the strikes, no arrests had been made, "but regardless, the arrest warrant is still active." He said the "Iraqi Security Forces," who were present at the strike scenes, told him of the warrants and said they would be making any arrests.

The arrest warrant accuses the union leaders of "sabotaging the economy," according a statement from British-based organization Naftana, and said Maliki warned his "iron fist" would be used against those who stopped the flow of oil.

IFOU called a strike early last month but put it on hold twice after overtures from the government. Awad said that at a May 16 meeting, Maliki agreed to set up a committee to address the unions' demands.

The demands include union entry to negotiations over the oil law they fear will allow foreign oil companies too much access to Iraq's oil, as well as a variety of improved working conditions.

"Apparently they promise but they never do anything," Awad said, confirming reports the Iraqi Oil Ministry would send a delegation to Basra.

"One person from the Ministry of Oil accompanied by an Iraqi military figure came to negotiate the demands. Instead it was all about threats. It was all about trying to shut us up, to marginalize our actions," Awad said. "The actions we are taking now are continuing with the strike until our demands are taken in concentration."

The strike by the Iraq Pipelines Union in Basra started Monday, instigated by a decision by the Iraq Pipelines Co. to stop regular bonuses to workers. It is part of a larger picture, however, of 17 different demands laid out -- beginning last month -- to the Iraq Oil Ministry and Prime Minister Nouri al-Maliki by the Iraq Federation of Oil Unions.

Since the strike began, two small pipelines delivering oil products to Baghdad and other cities have been closed, as has a larger pipeline that sends gas and oil to major cities, including Baghdad and utilities.

The strike started with domestic pipelines transporting oil and oil products, but Iraq's top oil unionist says it will soon encapsulate the 1.6 million barrels per day of oil Iraq sends to the global market.

Basra, home to much of Iraq's 115 billion barrels of oil -- the third-largest reserves in the world -- is also Iraq's main port. Awad said the unions will continue to restrict all oil exports, which bring in 93 percent of Iraq's federal budget funds. Such a move, combined with the choking off of much-needed supplies of transportation, cooking and heating fuels, is what the unions hope to use as leverage against Maliki.

Awad said "the atmosphere here is full of tension," and added that he wants to pressure the government to agree to their demands, not topple an already weak Maliki government.

"At the end we are hoping that the situation will not go that way," Awad said.

Maliki has been unable to meet a key benchmark set by the Bush administration and backed by the Democratic-led Congress: to pass an oil law. Many in Iraq, including oil experts and parliamentarians, are calling for the law to be put on hold. Negotiators haven't been able to agree on the best means of revenue distribution, whether central or regional governments will have more power in the oil sector, or how much access foreign investors will have.

Manfred Warda, general secretary of the International Federation of Chemical, Energy, Mine and General Workers' Unions, Wednesday sent a letter to Maliki condemning his tactics in addressing the strike. "Genuine and democratic trade unions are a cornerstone of democracy and at the same time are a force for reconciliation, peace and stability in a society," Warda wrote.

The Brussels-based International Trade Union Confederation and London-based Trades Union Congress have also condemned the military action and arrest warrants.

A top official with the International Federation of Chemical, Energy, Mine & General Workers' Union said his contacts say the strike had been toned down while negotiations were under way but has not ended.

"The strike began purely and simply at the pipeline," said Jim Catterson, the energy industry officer for Warda's federation, based in Brussels. IFOU "has membership capable of bringing an end to exports."

Kamil Mahdi, an Iraqi economist on Middle East affairs at the University of Exeter, said Maliki's swing from agreement with the unions to a military presence and warrants is "very surprising" and arresting the leaders won't quell the workers' demands.

"It may be the opposite. These are people who are highly respected in the community," he said. If the strike isn't stopped soon, "the effect on the global oil market will certainly be felt."

(Hiba Dawood contributed to this report.)

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