* Allawi and secularism may be big losers
* His Sunni supporters could deny him posts
* Election exposed depth of Iraq's sectarian divide
By Waleed Ibrahim
BAGHDAD, May 24 Despite winning Iraq's March election with a cross-sectarian coalition and a secularist platform, Iyad Allawi could turn out to be the big loser in Iraqi politics in a government dominated by Shi'ite parties.
The Shi'ite former prime minister whose Iraqiya coalition won two seats more than his nearest rival in the parliamentary vote, in part by winning overwhelming support from minority Sunnis, has often said that secularism is the only way forward for a country nearly destroyed by sectarian violence.
But even a senior member of his bloc concedes Allawi may walk away empty-handed from a new government controlled by the mainly Shi'ite State of Law coalition, led by Prime Minister Nuri al-Maliki, and the Iraqi National Alliance, which has close ties to Shi'ite neighbour Iran.
"All indications are that the formation of the next government will be done on a sectarian and ethnic basis," said the Iraqiya official, who spoke on condition of anonymity.
The gulf between the reality of sectarianism and the idea of secular government in Iraq could open a door to more regional interference, especially from neighbouring ideological arch-rivals, Shi'ite Iran and Sunni Saudi Arabia.
Allawi campaigned for better ties with the Arab world and for keeping Iran at a distance. Analysts say Tehran has been actively promoting a Shi'ite alliance to push Allawi, which Iran sees as the U.S. favourite, to the sidelines.
OUT IN THE COLD?
Allawi's win at the polls stands on shaky ground.
Iraqiya, which includes major Sunni figures such as Vice President Tareq al-Hashemi and popular former lawmaker Saleh al-Mutlaq, won 91 seats in the election to 89 for State of Law.
To form a government, a bloc would need to assemble a parliamentary union of 163 seats. The tight election -- third place INA got 70 seats and Kurdish parties took about 58 -- promised difficult negotiations for the needed majority.
State of Law and INA, former allies, have already announced plans to unite in parliament, giving the combined group 159 seats and making likely another Shi'ite-dominated government more than seven years after the U.S.-led invasion that ousted Sunni ruler Saddam Hussein.
With the Shi'ite blocs united and the Kurds expressing interest in joining them, Iraqiya, although led by the Shi'ite Allawi, is likely to be seen as the "Sunni" bloc in talks to form an inclusive government, and government posts will be distributed accordingly, the Iraqiya official said.
That means Allawi, who has said a State of Law-INA merger would effectively mark a return to sectarian government, could be left out in the cold.
"The idea that Allawi's list may be considered in the coming days as a Sunni list is a possibility that could actually come true," Baghdad political analyst Hazim al-Nuaimi said.
If a Shi'ite government designates certain ministries and top jobs for Sunnis and gives them to Iraqiya, Allawi's Sunni partners may want to keep them out of his hands because he is Shi'ite.
"The Sunni figures of his bloc will not accept giving Allawi any of the posts that will be given to them on a sectarian basis," the Iraqiya official said. "This will make Allawi the big loser and push him out ... with empty hands."
Gala Riani, an Iraq analyst with IHS Global Insight, said that while Maliki's bloc and Kurdish alliances also ran on secular agendas, the election results have confirmed the depth of Iraq's sectarian and national divides.
"The elections also unfortunately confirm the limitations at this point for political lists running on a cross-sectarian political platform," she said.
Iraqiya insists it has the right to first crack at forming a government as the election winner. But Maliki's bloc also claims that right as the result of its alliance with INA because their union would create the biggest grouping in parliament.
The constitution is not clear on the issue and the nation's Supreme Court has left open the two possibilities.
Maliki himself said last week that attempts at a truly national government had failed, and that the next government would be formed on a sectarian basis.
"We need another term to finalise this principle: the principle of forming and establishing a state not on a sectarian and ethnic basis but rather on a national basis," he said.
Allawi has repeatedly warned that Iraq could face a return to violence if the two major Shi'ite blocs join forces and try to exclude his Sunni-backed coalition. Iraq was torn by sectarian bloodshed that killed tens of thousands in 2006-07.
"The retreat of some parties to the sectarian approach could push the country again into sectarian conflict," Nuaimi said. "This will effect those who advocate secularism, especially Allawi ... and may make him the big loser." (Editing by Jim Loney and Samia Nakhoul)