London Financial Times
August 30, 2006

Iraq's Main Parties Reach Deal On Sharing Oil Revenues

By Guy Dinmore

WASHINGTON -- Iraq's main political factions have hammered out an agreement on the sharing of oil and gas revenues but other contentious issues need to be resolved before a draft hydrocarbon law is completed, a senior Iraqi official said yesterday.

Barham Salih, deputy prime minister in charge of the economy, told reporters in Washington by video link from Baghdad that the revenue sharing dispute had been settled during three days of intense talks at a "retreat" last week.

"That contentious issue is out," he said. The cabinet hopes to present the draft law to parliament by the end of the year, he added.

Oil and gas revenues would be shared out at the federal level and redistributed to the regions according to population and "needs", he said. This would still provide an incentive to regional oil companies to maximise output, he added.

Mr Salih, the most senior Kurd in the cabinet, did not elaborate on the negotiating process but the agreement would appear to be a compromise by the Kurdistan regional government.

Under its own regional draft oil law published this month, Kurdistan - which has already started signing contracts with foreign companies - would have received directly the revenues from "future fields".

Hussain al-Shahristani, the oil minister from the main Shia alliance, has insisted that the federal government control all of Iraq's resources. The formerly ruling Sunni minority fears the new constitution, which could yet be amended, would hand control of future oil development to the Shia and Kurdish dominated regions.

The parties also agreed last month to set up an "oil council" that would represent all regions in Iraq, and to restructure the Iraq National Oil Company as a holding that would incorporate "functional regional companies".

But Mr Salih said differences remained over who would be responsible for making major decisions and signing contracts. He made no reference to the oil reserves of the disputed province of Kirkuk, which the Kurdish autonomous region wants to control.

Iraq, believed to hold the world's second biggest oil reserves, after Saudi Arabia, is basing its federal 2007 budget on production of 2.2 to 2.5m barrels a day and exports of 1.7 to 1.8m b/d. Production is projected to double by 2010, Mr Salih said, while acknowledging serious security problems.

Before the 2003 invasion, the Bush administration said Iraq's oil wealth would pay for reconstruction. But production has struggled to return to pre-war levels because of sabotage, corruption and the decrepit state of the industry.

"Iraq is a devastated economic wasteland," Mr Salih commented. Nonetheless, it planned to become economically self-sufficient within four years, he said.

Among the dead were 23 Iraqi soldiers.