Oil and the Iraqi curse

by Bashdar Ismaeel

The contentious issue of oil sharing continues to highlight the crux of Iraqi discord.

Perhaps the greatest paradox of the Mesopotamian plains is the curse of the great treasure in those lands. With the third-highest proven reserves in the world of “black gold” (115 billion barrels of oil), Iraq has the potential to provide for one of the strongest and most flourishing economies in the world along with a great standard of living for its people.

However, almost exclusively by successive regimes, the wealth from oil has been hoarded by the central government and spent on expensive military adventures; and under Saddam Hussein used to rule and repress the people. Under Saddam, the Sunni elite were the masters of oil, and so assumed the huge wealth of the country. However, in Iraqi Kurdistan, it is evident that if even 2 per cent of the Iraqi oil was spent in the region every year, for social services other than oppression, the infrastructure would be so much better.

The Kurds and Shiites now have a second chance in the post-liberation age and it is understandable they finally want a share of the riches they have long been denied, much to the dismay of the now disenchanted and marginalised Sunni population. Post-liberation Iraq may be riddled with a poor economy, political wrangling, and a brewing civil war, but arguably, the most significant of the contentious issues is the division of the oil wealth among the warring population.

The resolution of the oil issue may determine how many of the other key issues are resolved. For example, the crucial sticking point in the system of federalism - of which the Kurds are major advocates and biggest benefactors to date - is the ultimate power and autonomy granted to federal entities in fiscal matters and in the control of natural resources.

Clearly, the biggest issue in Iraq and the fuel for the rampant and relentless Sunni-led insurgency in Iraq, which claims thousands of lives and creates an atmosphere of fear and havoc, is the strength of the Shiites and the prominence of the Kurds in the post-Saddam era. With the Shiites forming an overall majority of the population, it is unsurprising that they will naturally dominate any subsequent government. However, coupled with the Kurds, the king makers of the new Iraq, they at least in theory form a formidable alliance.

Both groups were heavily repressed under Sunni rule and both are overly keen to rectify the wrongs of the past. Kurds and Shiites will not easily forget their merciless injustice under Saddam.

On the other hand, the Sunnis will hardly find it difficult to realise that they are in for a tough future under the current Iraqi framework and essentially now have to play second fiddle in Iraq. As a result of their fall from power and stronghold on society, Sunnis naturally view the Kurds and Shiites with much suspicion. One wonders why the current insurgency is such a huge surprise as it forms a last Sunni stand before they lose grip of the country altogether. The Sunnis want to be heard and want a stake in the future. For them, using threats and anarchy is a better way of being taken seriously than any vote in government where they may ultimately hold little sway because of their minority status.

Furthermore, Sunnis despise federalism because power is distributed to the regions. Given the fact that the oil wealth of the country is ironically concentrated in the Kurdish north and Shiite south, Sunnis fear a rough bargain with only barren, impoverished lands in the middle areas where they dominate.

Perhaps one of the biggest stumbling blocks to common agreement has been the Kurds who are suspicious of being at the mercy of a central government once more. While the Kurds have been signing oil exploration contracts in unison and rebuilding their area at a remarkable rate, this has caused much dismay further south, where it has been repeatedly stated that contracts with the Kurdistan Regional Government are void without their stamp of approval.

The Iraqi Constitution seemed to highlight the way ahead in terms of the distribution of oil wealth, stipulating the rights of regional governments to explore new oil fields while the existing oil fields would remain under central control. With the Kurdish north, hardly the favoured lands of Iraqi regimes, exploration almost starts with a blank page. In other words, other than the contentious issue of Kirkuk, a long-established and coveted oil centre that they will likely assume anyway in a referendum later this year, the Kurds could enjoy the fact that almost all oil under their jurisdiction would ultimately remain under their control as part of the Constitution.

However, just like much of the political gains of the past four years, laws and agreements have often been rushed through - under pressure from the impatient US administration - and subsequently many of the major issues have been swept under the political rug.

In the context of the Iraqi Constitution, Iraqis seemingly agreed to disagree. Politicians vowed to make amendments to the Constitution in order to appease Sunni factions, when already the vast majority of Iraqis had approved it in a referendum. This just goes to show that democracy Iraqi-style is simply a veil for political parties who will get their way no matter what, and regardless of the choices of the people.

Finally, after much compromise and wrangling, the Iraqi factions moved painstakingly closer to agreement on the draft hydrocarbon law of which oil is the primary factor. However, it is clear that it was grudgingly accepted by some, and much like the Constitution, could spur further debate or infighting later.

On Tuesday, July 3, Iraqi Prime Minister Nouri al-Maliki claimed his government had approved the draft oil law and would send it to Parliament for ratification. This prompted much (short-lived) joy and optimism from the Bush administration and among Iraqis. However, keeping in line with the Iraqi political track record, the joys of the announcement were hampered by subsequent apprehension and rebuke, first by the Kurdistan Regional Government (KRG) and then by Sunni factions.

The Kurdish statement released by the KRG was firm in its dismay over the announcement claiming that they had not seen or approved the final text of the law, while quickly emphasising that any changes to the originally agreed-upon oil law ratified by the Iraqi government would be considered a violation of the region's constitutional rights.

The law was designed to regulate Iraq's oil industry and in turn determine, among other things, the role and power of the central government and the distribution of oil wealth among Iraq’s disparate population.

The draft law was first approved by the Cabinet in February after much squabbling between Kurdish, Shiite, and Sunni factions who demanded certain amendments from the original proposed draft law. The original had been strongly rejected and propagated much tension. The Kurds in particular, a key party in the negotiations, were adamant that it would reject any major changes to what had already been agreed.

The biggest issue centred on the proposed formation of the Iraqi National Oil Company (INOC), which would effectively hold sway over 90 per cent of Iraqi oil, going against federal arrangements of the past. The Kurds later reluctantly accepted the oil law for 17 per cent return on any future oil funds and assurance that all existing contracts made with foreign firms would be honoured. This is in contrast to statements by Oil Minister Hussein Shahristani earlier this year, which insisted that any contract signed before the adoption of the oil law by the government, would be annulled, thereby angering Kurds.

Al-Maliki proposed that debate within Parliament could start on Wednesday July 4, 2007 after the text was sent to the Cabinet’s legal committee, an authority that oversees drafting of text and language but not changes to the articles of the law itself. However, an agreement on the draft failed to materialise on the targeted day, opening the way for more delays.

The government claimed that the new draft law only contained linguistic and structural changes, but the deep mistrust felt among Iraqi factions could be felt through the negativity of the KRG reply, which stated that “while the KRG is happy with the legal committee's language improvements and restructuring of the legal text, we reject its changes to the substance of the law".

The Kurdish concern centres on the lack of clarity around which version of the text was put forward to the committee. After much debate, changes were made to the original draft to appease Kurdish discomfort.

Any agreement on July 4 would have lacked credibility in any case with only 24 of the Cabinet's 37 members available to vote, due to boycotts by ministers from the Sunni Iraqi Accordance Front and Muqtada al-Sadr’s influential Shiite bloc, owing to separate disputes with al-Maliki.

Arguably the greatest faction with the most at stake in the provision of the draft oil law is the Bush administration. Stuck in the middle of a ubiquitous insurgency, often much-hailed previous political milestones have not had the desired affect they have craved. With widespread terror and bloodshed, the US has been urging the government towards reconciliation by setting a number of benchmarks for the al-Maliki administration. In fact, it arguably sanctioned the recent security surge to buy al-Maliki time, after most of the benchmarks set for the Iraqi government in 2006 weren’t met as the government was bogged down in a security struggle.

Of the benchmarks, the US sees an agreement on oil as a precursor to reconciliation and future harmony in Iraq.

One of the priorities of the US is to ensure that the Sunnis are enticed into the political process and appeased to endorse future agreements, as a prelude to ending the raging insurgency. Disenfranchised Sunni sentiment could be felt with the Accordance Front warning that any draft considered without the Sunnis buying-in is fruitless and would attract more disunity.

The Association of Muslim Scholars, a powerful Sunni voice, even issued a fatwa to denounce the law.

In fact, with the government holding the majority needed of the 275 seats in Parliament any draft can be easily sanctioned. However, this defeats the sole objective of the US and al-Maliki administration to conduce national reconciliation.

However, there appears to be disagreement between Shiites themselves, with Nassar al-Rubaie, head of the Sadrist bloc in Parliament, criticising the draft law for leaving nothing of Iraq’s unity.

Oil exports are the single most important source of revenue in Iraq and a guarantor of future economic recovery. Yet frequent insurgent attacks on oil facilities have crippled oil infrastructure with severe fuel shortages in a land awash with oil. The passing of the oil law is crucial for much-needed foreign investment and to provide a better and prosperous future for Iraq and crucially provide a real alternative to insurgency and mass unemployment gripping Iraq.

Since the US-led invasion began, the economy has tumbled in a downward spiral with oil production about 1.5 million barrels less than under the Saddam regime.

Even the issue of the historical city of Kirkuk centres on oil, and this is the reason for the evident suspicion of the Turkish regime for Kurdish designs on the city. Clearly, whoever holds sway over oil also simultaneously holds sway over influence and power.

Deep differences remain between Sunni, Shiite, and Kurdish factions, and oil is currently the tip of the iceberg. How harmony will ever be maintained in Iraq is open to much debate, even if the US does ultimately execute a successful exit strategy.