Petrel Resources - moderated discussion/research part II

Iraq's Grim Oil Politics
As civil war boils, the country's future depends on how sectarian groups divide what's underground.
By Michael Hastings
Newsweek
Issues 2007 - On the way to a surprise visit in Baghdad in October, U.S. Secretary of State Condoleezza Rice decided to talk to reporters about oil. "We believe that oil has to benefit the Iraqi people as a whole," she said at a press gaggle en route to the Iraqi capital. In a whirlwind of meetings over the next two days, she pushed the oil topic again and again with leaders on all sides—Sunni, Shiite and, most prominently, Kurdish President Massoud Barzani, to whom she reinforced her feelings that "oil needs to be a unifying factor, not one which will help to make the country less unified." In other words: please stop fighting and share

Yet Iraq's sectarian fighting is, to an extraordinary degree, about the very issue of sharing oil. The country's political future and its energy future have converged. The side that wins in this burgeoning civil war gets control, in theory, over some $35
billion a year in oil revenue, making up 90 percent of the Iraqi budget. The side that loses—well, they fear they won't get anything at all. And Iraq's daily spasms of violence are closely tied to maneuvering over the future control of oil, as well as rampant oilfield corruption. Oil monies skimmed off the top are said to be funding the insurgency, say U.S. officials.
Of the competing plans to resolve the conflict, all depend on oil. Calls for a federated Iraq, broken up into three states, are hampered by fears of which state gets the most oil. The answer is well known—the Shiites in the southern region have more than 80 percent of Iraq's proven oil reserves. Kurdistan, in the north, has access to the fields of Kirkuk, which have been pumping petroleum since the 1920s. And the Sunnis, the minority that once dominated and profited from Iraq's black gold, are stuck in the middle with a desert and lots of sand, underneath which oil experts expect there is oil, but no fields are anywhere near being developed.
Oil was supposed to be Iraq's savior, with Bush administration officials promising that profits from oil revenues would pay for reconstruction. It was the Oil Ministry, almost alone among government buildings, that the U.S. forces protected after the fall of Baghdad.
But it's turned out to be another factor in the country's rapid decline. Regular insurgent attacks on the pipelines and oil facilities—the first three years saw at least one attack a week on average—have meant that production is only now reaching prewar levels. Iraq still has to import a majority of its fuel. Nearly four years into the war, the country has had four oil ministers. A recent study by economist Colin Rowat at the University of Birmingham revealed that if you factor out foreign aid, Iraq's GNP is actually $27 billion less than it should be because of the war. And all these factors will come to the fore in early 2007, when the Iraqi Parliament is supposed to pass the country's new "hydrocarbon law," legislation that would spell out who gets the oil money now and who profits from any future discoveries.
The hydrocarbon law, though crucial, is beset by sectarian backstabbing. Each side has written its own draft of the law—there are at least three currently floating around—and the Kurdish draft is the most professionally done, says a Western diplomat who advises Iraq's Oil Ministry. Barham Salih, a Kurd and Iraqi vice president involved in the bill, says his goal is to make Iraq the Arab world's first "petro-democracy"; the Kurds have already cut a deal, independent of the central government, with a Norwegian firm to start test-producing oil in the first quarter of 2007. Another key player involved in writing the law—Finance Minister Bayan Jabr—is considered one of the worst sectarian offenders. He was pushed out of running Iraqi's Interior Ministry in June 2006 because Shiite death-squad activity ballooned under his watch.

The infighting has also produced a big controversy over what has not been spent on much-needed investments. According to the Western diplomat, in 2005 to 2006 some $3 billion wasn't spent from the Oil Ministry's budget, and $4 billion to $5 billion wasn't spent in 2003 to 2004. Jabr is also accused of squirreling away funds for southern Iraq. "We have to take the power away. We have to pry their hands from the power," says the Western diplomat.



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