January 26, 2012 / 12:10 PM / 8 years ago

Iraq oil law deal festers as crisis drags on

BAGHDAD (Reuters) - The political crisis engulfing Iraq’s power-sharing government threatens to further delay a landmark draft of its long-delayed oil law - five years after the first version was submitted to parliament.

Political tensions are high after Prime Minister Nuri al-Maliki’s government sought to arrest a Sunni vice-president and asked parliament to sack a deputy prime minister, triggering turmoil days after the last American troops left in December.

The first hydrocarbon draft law was agreed by Iraq’s diverse political blocs in 2007, but its approval has been held back by infighting among Sunni, Shi’ite and Kurdish political groups, worrying investors seeking more guarantees for the industry.

That political stalemate has been exacerbated by the current crisis with the Sunni-backed Iraqiya bloc boycotting parliament and some of its ministers staying away from cabinet while Maliki threatens to replace them in the power-sharing government.

“With these chronic political differences I can’t see any possibility of having an oil law this year,” said Adel Barwari, a Kurdish adviser to Maliki. “If the (differences) were, say for example, 2 or 3 percent, I would say yes we could have a law, but the percentage is much higher.”

The hydrocarbons law is key to resolving bitter disputes over Iraq’s crude reserves between the central government in Baghdad and semi-autonomous Iraqi Kurdistan in the north as the OPEC member seeks to build production.

Maliki’s Shi’ite-led government is a power-sharing arrangement that divides up posts and ministries among Shi’ite, Sunni and Kurdish blocs, but its work is often stymied by political disagreements among them.

Last year, the government amended the original draft in a way that would give Baghdad more control over crude reserves, provoking a clash with the Kurdistan region, which claims its own control.

But Kurdish authorities insist they should keep the right to manage oilfields within their region and also to have the right to sign their own oil deals, a demand seen by Baghdad as undermining its central control over the vital industry.

A move by Exxon Mobil Corp. to sign an exploration deal with Kurdistan further exacerbated the dispute after Baghdad threatened to take action against the oil major, which also has a deal with the central government to develop a southern oilfield.

Frustrated by cabinet’s delay to endorse the hydrocarbon law and to put pressure on government, the parliamentary energy panel drafted its own hydrocarbon law late last year, but majority Shi’ite members on the commission rejected it.

The two competing drafts are now on the table awaiting more discussions in parliament.

CONTROL OVER VAST RESERVES

The new hydrocarbons law is crucial to Iraq’s efforts to rebuild after years of war by giving investors a more solid legal framework. It has been in the making for years, mired in wrangling over who controls the world’s No. 4 oil reserves.

“Kurds are seeking broader control over oil resources by stripping away the central government’s authorities. They still have a phobia that a strong government in Baghdad could turn against them one day,” a senior politician close to Maliki told Reuters, reflecting the central government position.

Kurdish regional Natural Resources Minister Ashti Hawrami in late December sent a formal letter to the central government’s oil minister, Abdul-Kareem Luaibi, laying out their demands for further amendments of 2007 draft law.

“The 2007 draft is not in agreement with the constitution and we see an essential need to amend it... as the current draft strips authority from the region to the benefit of central government,” a document attached to Hawrami’s letter obtained by Reuters showed.

According to Hawrami’s letter, the regional government has sent its suggested amendments to parliament and asked Luaibi to send his opinions to parliament directly. The parliament’s energy panel confirmed it received only Kurdish suggestions, but nothing from the government so far.

Maliki and Prime Minister Barham Salih of the Kurdistan Regional Government agreed during talks in Baghdad in October that by December 31, they would either amend a 2007 hydrocarbons law as agreed by all political factions or adopt the 2007 law as is.

Under that agreement, the central government was supposed to issue another draft or return back to 2007 oil draft by December and parliament should approve it in March, a Kurdish member of parliament’s energy panel said.

“Cabinet was supposed to issue another draft at the end of 2011 and parliament to approve it in March, but the political crisis has idled everything. The oil law is frozen now,” said the member, Bayazid Hassan.

Parliament’s energy committee now has the two versions of the oil law and will study both to come up with an acceptable version, Oil and Energy Committee chief Adnan al-Janabi has told Reuters.

“Kurdish authorities are following their privatisation policy in managing their oil resources while central government insists on the principle of oil for all Iraqis,” said Baghdad-based oil analyst Hamza al-Jawahiri said. “The dispute could drag on forever.”

Writing by Ahmed Rasheed; Editing by Patrick Markey

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