Iraq Struggles to Finish Oil Law

The United States has been pressing Iraq to complete the law. "As awful as the Saddam Hussein government was, it did have a record of dealing with foreign investors that wasn't that bad," said James A. Placke, an expert at Cambridge Energy Research Associates. "That's gone and hasn't been replaced."

Now, forging a petroleum law requires a balancing of sharply divided interest and ethnic groups, not just the word of a dictator.

"This is not a regular piece of Iraqi legislation being signed off on," said Jonathan Morrow, an adviser to the Kurdistan Regional Government. If successful, he said, "it . . . might show the way forward in Iraq."

Saleh suggested that a deal might discourage attacks on oil installations and reduce corruption. "Since we all agree on revenue sharing, all elements of Iraqi society will have an interest in maximizing revenues and best business practices," he said.

For now, however, the oil sector is a mess. Since the first attack on a pipeline on June 1, 2003, it has been a struggle to keep oil flowing. Basic production equipment has been looted or destroyed. Many wells still are not working properly. And last year, the U.S. special inspector general for Iraq reconstruction complained that Iraq's oil ministry was not reporting on its budget and had spent "only a fraction" of money set aside for capital costs.

While the Bush administration once thought that Iraqi oil revenue would cover occupation and reconstruction costs, the Iraq government still relies heavily on U.S. technical and financial aid. Placke estimated that Iraq produced 1.85 million barrels a day last year, less than the year before, less than the prewar output and well below the U.S. target of 3 million barrels a day.

Placke, who was part of the Iraq Study Group, estimated that 200,000 barrels a day is siphoned from the main export line through southern Iraq, put on barges, and loaded onto tankers waiting in the Persian Gulf. What's left after discounts and bribes goes to militias or insurgent groups, he said.

In the south, some local Shia militia, clan or clerical groups are trying to claim the rights to some Iraqi fields and a voice in negotiating access for foreign companies. A stake in a billion-barrel field could be more important than a stake in the parliament or cabinet. Some experts worry that, as in Sudan, oil could contribute more to tearing the country apart than to uniting it.

A senior Iraqi government official involved in the petroleum-law talks said that if militias and clans were to cut separate deals with foreign companies, it would be a "recipe for disaster and civil war." He warned foreign companies against signing such deals. "We are very interested in credible investment in the oil sector," he said. "We cannot afford to have these cowboys running around trying to manipulate the situation in Iraq."

The national petroleum law remains a touchy subject in part because of widespread suspicion that the U.S. invasion in 2003 was motivated by designs on Iraq's oil riches.

The Iraq Study Group report contained three pages of recommendations for the sector, including suggestions that international oil companies invest in the country and the government fight corruption on contracts.

"Before embarking on controversial measures such as this law favoring foreign oil firms, the Iraqi parliament and government must prove that they are capable of protecting the country's sovereignty," Kamil Mahdi, a senior lecturer in Middle East economics at the University of Exeter in England, wrote in the Guardian newspaper. "A government that is failing to protect the lives of its citizens must not embark on controversial legislation that ties the hands of future Iraqi leaders, and which threatens to squander the Iraqis' precious, exhaustible resource in an orgy of waste, corruption and theft."

In a telephone interview, Mahdi said, "My main worry is that if I were an official in the ministry of oil negotiating a contract and living under the kind of threats that people in Iraq are daily experiencing, I would probably be in a very weak negotiating position."

While the debate continues, the Kurdistan Regional Government is pushing ahead. In 2002, at the suggestion of Jalal Talabani, the Kurdish leader who is now Iraq's president, the Turkish conglomerate Cukurova Group set up an oil unit called Genel Enerji to look for oil in Kurdistan. Genel signed a production-sharing agreement in July 2002 and took over the Taq Taq oil field in February 2003 on the eve of the U.S-led invasion. It signed another exploration contract in July 2005. A Norwegian firm, DNO, and a Canadian firm, Heritage Oil, also struck exploration and production deals in the Kurdish region.

Tariq Shafiq, a former executive of Iraq National Oil and director of the consulting firm Petrolog & Associates, has drawn up three contracts -- service, buyback and production-sharing -- that the government will use in its new petroleum law. He said the Kurdish production-sharing contracts give away too much to the foreign companies; he said that after paying for capital and operations costs, as much as 55 percent of the oil goes to the foreign firms. "These, in the eye of many, are illegal and would have to undergo review to bring them in line with this law," he said.

But Kurdish authorities said they have no intention of submitting existing contracts for review. Duran said Genel's contract was renegotiated last November and falls within the 20 percent share production that would be the ceiling under the new law. "The commercial terms of the PSA are in conformity with internationally acceptable PSA terms," Duran said in an e-mail response to questions. "Therefore, our PSA is not generous at all."

Major U.S. oil companies haven't signed any contracts in Kurdistan yet. Some of them have tried to build goodwill with the central government. Chevron, for example, helped clear mines from the coastline. Others have collected seismic data or trained Iraqi oil company technicians in Dubai.

Some major companies from other nations -- Russia's Lukoil, a Chinese state company, France's Total -- are hoping to get their big Hussein-era concessions back. Their prospects remain uncertain.