TAZA, Iraq (Reuters) - One summer day last year, insurgents drove a truck packed with explosives into a crowded market area in the small Iraqi town of Taza, unleashing a blast that killed 88 people and flattened dozens of clay brick homes.
The horrific attack brought millions of dollars in state aid and private donations, fuelling a wave of construction around the blast site that would be the envy of other hardscrabble towns in a province where desperately needed investment and development is obstructed by a bitter, decades-long ethnic feud.
Efforts to rebuild Kirkuk, where dusty, depressed villages and neglected farms belie the vast oil wealth sitting under its soil, and to energize a dormant economy are linked to the U.N.-backed bid to unravel the dispute that has pitted Iraq’s Arab-led government against minority Kurds and Turkmen.
The dispute over Kirkuk, which Kurds want to make part of their semi-autonomous northern region, is now seen as a chief threat to security as Iraq emerges from a bloody sectarian war and tests its fragile democracy in national polls on March 7.
Abdul Rahman al-Mashhadani, an economist at al-Mustansiriya University, said the feud over control of disputed areas like Kirkuk adds another layer of concern for investors considering Iraq, plagued by a stubborn insurgency and rampant corruption.
In the World Bank’s ranking of doing business around the world, Iraq falls between Sudan and Tajikistan.
U.S. officials say that creating a measure of growth and establishing cross-ethnic business ties will be essential in unraveling the dispute over Kirkuk and other disputed areas.
Even though everything in Iraq comes down to politics, one U.S. official said security is no longer the chief deterrent to investment in Kirkuk, citing serious concerns about whether the province will remain under Baghdad’s control, be absorbed by Kurdistan, or become an independent region.
“Without a doubt in our minds, the lack of investment here, the lack of interest, has a lot to do with the lack of predictability,” he said on condition of anonymity.
Political uncertainty has undermined Kirkuk’s economy in far-reaching ways. Amid visceral confrontation over ethnicity and identity in Kirkuk, which Kurds say was flooded by Arabs under Saddam Hussein and Arabs allege was swamped by Kurds since 2003, Kirkuk was left out of provincial polls last January.
This has meant that a law passed to give local officials more leverage in securing funds to rebuild and modernize has not been implemented in Kirkuk.
Officials from across ethnic lines agree private capital is desperately needed in Kirkuk, especially in agriculture, which is crippled by drought and a lack of suitable seeds and equipment.
Yet investment in farming, like other sectors, has been thwarted by multi-generational land disputes among Kurds, Turkmen and Arabs, many of them rooted in Saddam’s ‘Arabization’ push to move fellow Arabs into oil-producing Kirkuk.
Ibrahim Khalil Rasheed, a Kurd who heads the Kirkuk provincial council’s economy committee, said 90 percent of land in Kirkuk is subject to ownership disputes. “Without access to this land there can be no development projects,” he said.
A property dispute board is slowly trying to sift through 41,000 cases dating from 1968 to 2003; only 7 percent have been settled. That figure does not include land disputes that have cropped up since 2003, which may number in the thousands.
Oil has been a blessing and a curse for Kirkuk. Discovered in the 1920s, the super-giant Kirkuk field, with reserves of about 8.5 billion barrels, transformed a dusty trading post into a northern oil hub. Yet oil has also brought great conflict.
Oil facilities here have decayed in part, Kirkukis believe, because of uncertainty in Baghdad about Kirkuk’s future.
There is evidence to suggest the row has intensified reluctance among global firms eyeing Kirkuk, an older field whose production costs exceed those in southern Iraq.
The Iraqi Oil Ministry offered energy majors a long-term contract for Kirkuk last year, but unlike other big fields in less volatile areas, Kirkuk has not yet been snapped up.
There have been talks with a group led by Royal Dutch Shell for the field, but no deal on the field is in sight.
Of all the fields the ministry has offered in volatile northern Iraq, only Angolan state firm Sonangol has signed up.
U.S. officials say a permanent settlement on Kirkuk’s future may not be necessary to kickstart the economy.
“We need a direction, that’s all,” the official said. “That’s what’s going to bind this country, the vast potential for economic development.”
Additional reporting by Mustafa Mahmoud in Kirkuk and Khalid al-Ansary in Baghdad; Editing by Samia Nakhoul