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Iraq oil law stalled, no end to impasse in sight

BAGHDAD (Reuters) - A law that could shape Iraq’s future by clearing the way for investment in its oil fields is deadlocked by a battle for control of the reserves and no end to the impasse is in sight, lawmakers and officials say.

Columns of flame rise from the ground as excess oil burns at the compound of the North Oil Company's refinery in Kirkuk, 155 miles north of Baghdad, November 12, 2007. A law that could shape Iraq's future by clearing the way for investment in its oil fields is deadlocked by a battle for control of the reserves and no end to the impasse is in sight, lawmakers and officials say. REUTERS/Slahaldeen Rasheed

The bill is also meant to share revenue equitably from the world’s third largest oil reserves, thus helping bridge the deep divides between Iraq’s Shi’ites, Sunni Arabs and Kurds.

The one thing all sides agree on is the law is vital to securing foreign investment to boost Iraq’s oil output and rebuild its shattered economy after five years of insurgency and sectarian fighting that has killed tens of thousands of people.

But the law remains stalled by bitter rows between Baghdad and the largely autonomous Kurdistan region in the north over who will control the fields and how revenue will be shared.

“Basically we’re talking about political will here,” said a U.S. official in Baghdad, who asked not to be identified.

“These are not technical issues, it’s a question of if they have the political will to reach the kind of compromises both sides need to make to achieve this. There’s a lack of trust.”

Iraq, currently producing some 2.3 million barrels per day, is seeking major investment to tap its reserves and boost output. It holds 115 billion barrels of proven crude oil reserves, surpassed only by Saudi Arabia and Iran.

U.S. officials say the main reason foreign oil majors have avoided Iraq is the lack of the law, not security concerns.

In the absence of the law, Baghdad has opened the door to foreign oil firms by offering a role in servicing existing oil infrastructure. Over 70 companies met the deadline on Monday for submitting documents to qualify to compete in service contract tenders.

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At least four drafts of the oil law have been written, but parliament has been unable to settle on a preferred version.

The cabinet first agreed a draft a year ago. It was sent back after lawmakers were unable to resolve disputes over the rights of regions, notably the Kurdish region, to negotiate contracts with foreign oil firms and whether the federal or regional governments would control the fields.

“The law has been debated for a year, that’s long enough. If we want Iraq’s economy to stand on its own feet, then we should pass it as soon as possible,” Ali Hussain Balou, head of the parliamentary oil and gas committee, told Reuters.

Balou, a Kurd, said he hoped a final draft would be ready for debate in parliament when the legislature returns from its winter recess in the third week of March, although such hopes have been dashed many times before.

The prime minister of the Kurdistan regional government would soon visit Baghdad for talks on the law, he said.

DISPUTED ANNEXES

Much of Iraq’s reserves are in the Shi’ite south, but there are also fields in the Kurdish north. There are few proven reserves in Sunni Arab areas in central and western Iraq.

The latest draft law was sent to parliament this month but did not go any further because cabinet ministers had not signed it correctly, said Balou. It was sent back.

He said the draft also lacked four controversial annexes that had previously been drawn up to solve the impasse between Baghdad and Kurdistan over control of oil fields and contracts.

The first two annexes concerned developed and partially developed fields of Iraq’s proven reserves. Annex III covered undeveloped fields, while Annex IV listed 65 exploration blocks.

Another key sticking point has been a federal oil council that the oil ministry wants to manage the industry. The Kurds view that body has wresting too much control from them.

Abdul-Hadi al-Hasani, deputy head of parliament’s oil and gas committee, said the Kurds were adding to tensions by signing oil deals with foreign firms, contracts Baghdad deems illegal.

“The controversy is about the interpretation of regional authorities to control oil fields,” said Hasani, a Shi’ite.

“The Kurds insist these annexes are not essential and the draft can be passed without them. That is unacceptable.”

The U.S. official said he believed disagreements about revenue sharing could be resolved but that the issue of existing and future contracts remained the biggest obstacle.

The Kurdistan region government has signed oil deals with foreign companies, insisting it has the constitutional right. This has infuriated the oil ministry in Baghdad.

The ministry this year halted oil exports to South Korea’s largest refiner, SK Energy, and Austria’s OMV AG in response to what it says were illegal oil exploration deals with the Kurdish regional government.

Writing by Paul Tait and Dean Yates, Editing by Anthony Barker

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