Missteps and Mistrust Mark the Push for Legislation

IRBIL, Iraq -- Two weeks after the United States launched an ambitious security plan for Iraq, then-U.S. Ambassador Zalmay Khalilzad issued an enthusiastic announcement about progress toward an Iraqi oil law, a key American goal.

"This is a significant political achievement," the Feb. 27 statement began. "Under the approved law, oil will become a tool that will help unify Iraq and give all Iraqis a shared stake in their country's future."

But Iraq's oil law was far from approved. And as negotiations dragged on during the spring and summer, the inability to devise a means to divide the spoils of the world's third-largest oil reserves had instead torn Iraqis further apart. Khalilzad's hands-on efforts for the law are now seen by many Iraqis as inspiring a swell of Arab nationalist opposition and as one of many stumbles on the legislation's dismal journey.

"This was a very bad move by the Americans to push for this law," said Issam al-Chalabi, a former oil minister. "Now it looks like . . . the Americans are after oil -- they will bring their Exxons and Chevrons and they will control our oil again."

There were two main camps from the start. The Kurdistan regional government's minister of natural resources, Ashti Hawrami, drafted a federal oil law that he gave to Oil Minister Hussein al-Sharistani in July 2006 -- a move taken as a "shot across the bow" in Baghdad, according to one Western diplomat. It spurred the Oil Ministry's three-man team of Iraqi oil experts, working out of London and Amman, Jordan, to hurry their draft.

The resulting document, completed in August 2006, outlines strong central government control over Ira qi oil production, with scant mention of regional powers. All petroleum decisions "shall be made on the basis of Iraqi Federal laws," the draft began.

"The overriding principle is oil is owned by all the Iraqi people and not one region," said Tariq Shafiq, one of the initial drafters.

Hawrami said he hated the draft because it ignored the Kurds and was written in a "nationalistic, prejudiced" manner in the "language of the Baathist Saddamist era."

Working with a negotiating committee that included several cabinet ministers led by Deputy Prime Minister Barham Salih, a Kurd, the Kurds asserted a constitutional right to control what they see as their oil, as well as the ability to negotiate their own oil contracts with foreign firms. They relied heavily on articles from Iraq's new constitution deeming that oil management should be on a joint basis with the federal and regional governments, and that in case of any dispute over shared powers, "priority shall be given to the law of the regions."

After a thorough overhaul of Shafiq's draft, by Dec. 17 the Kurds believed an agreement had been reached that would give them the right to negotiate and sign new contracts for oil projects within their territory and receive a share of oil revenue based on population. But revisions made quietly in Baghdad, which the Kurds felt undermined those terms, dissolved the agreement and caused the Kurds to harden their position. They asserted they would pass their own oil law if there was no federal law by May 31 and demanded that three accompanying pieces of legislation -- concerning oil revenue sharing, the role of the Oil Ministry and the charter of the Iraqi National Oil Co. -- be passed as a package.

Hawrami told his fellow negotiators he was losing confidence in their "ability to play fair," he recalled.

By Feb. 26, a draft of the main legislation satisfactory to the Kurds and the central government was approved by cabinet ministers, who promised to send it to the fiercely divided parliament for ratification.