More Kurdish feuding with Iraq Government

[ken hanly <northsunm@xxxxxxxxx>]

Analysis: Kurd oil feud is Iraq's future
By BEN LANDO
UPI Energy Correspondent
WASHINGTON, Sept. 28 (UPI) -- The head of the
Kurdistan Regional Government has threatened to break
away from Iraq in a dispute over control of oil
resources, revealing deeper fragmentation between
provincial and federal governance.

The prime minister of the KRG, Nechirvan Barzani, said
Wednesday the relatively stable northern region --
autonomous since 1991 -- might break from the fragile
tripartite republic if oil contracts it has signed
aren't recognized by the government in Baghdad.

Their rift represents more than a squabble over
federalism's reach, but a country occupied by foreign
troops, progress stalled by daily violence, moving
toward total fracture.

Key leaders in parliament reached a tentative deal
Sunday quelling attempts, for now, to amend the
constitution to allow more autonomy for the regions.
The Kurds as well as a faction of Shiites in the
oil-rich south are in favor of this, while it's
opposed by the minority Sunnis in the oil-barren
middle of the country and a Shiite bloc eyeing a
prominent role in a stronger, centralized government.

Barzani, in a statement released by the KRG, responded
to Iraqi Oil Minister Hussein al-Shahristani's
comments that the central government doesn't have to
respect oil deals signed by the regional authorities.

"I resent Dr. Shahristani's efforts to sabotage
foreign investment in Kurdistan's oil sector," he
said. "Dr. Shahristani would better spend his time
getting his ministry working rather than tearing down
our achievements."

The KRG has signed a handful of production-sharing and
drilling deals with small international oil companies
and conglomerates. Barzani said foreign investment
since 2003 has topped $100 million, including newly
found oil reserves, though the infrastructure to
transport the oil to market is under constant attack.

Major oil companies have stayed away because of the
regional dispute, experts say.

The central Iraqi government has been struggling with
the ongoing violence that has hampered the oil
infrastructure -- still pumping below pre-war levels
-- and the parliament has been unable to pass a
federal oil law.

"Many of the disputes over oil reflect the tensions
over the political future of the country and the
degree to which various provinces will be able to
carve out autonomy from the central government," said
James Phillips, a Middle East expert at The Heritage
Foundation.

Phillips said the oil-rights dispute will set the tone
for future battles over key issues like water rights
and future control over the northern city of Kirkuk, a
historically Kurdish city until Saddam Hussein's
displacement campaign, which the KRG wants as its
capital.

Kirkuk is also the oil depot to send KRG petroleum to
market, but attacks along the pipeline to Turkey have
seriously hampered capacity; a security upgrade will
be necessary if KRG oil prospects are going to bring
home profits.

A vaguely worded constitution governs Iraq's oil
resources, loosely interpreted to place all oil under
federal control and new finds for the regions.

The central government is debating -- behind closed
doors -- a federal oil law and hopes to pass it before
year's end.

Phillips said Barzani may be merely posturing for his
independence-minded constituents. Or he could be
serious, "that if the Kurds don't get what they want,
they could go their own way," a move opposed within
Iraq as well as by its neighbors, Iran and Turkey,
fearing their own Kurdish factions could demand
independence.

And so the Kurd/central government dispute over oil
control is intertwined with the debate over
federalism. Both will determine who gets control over
the oil resources and, in turn, to whom wealth from
resources is distributed.

"This is the heart of the struggle for Iraq," said
Saad Rahim, an oil risk analyst at PFC Energy.
Kurdistan's autonomy "sets the tone for the rest of
the country," he said.

PFC Energy estimates oil revenue makes up 96.3 percent
of Iraq's budget, so regions with oil and autonomy can
choose to keep their money within their borders,
leaving little resources for essential services to the
center of the country.

Or, the central government will decide to handle the
receipts and redistributes the wealth.

Right now there's a huge unknown, which is why PFC
Energy is telling clients "you don't want to go in and
sign a contract -- no matter how attractive it looks
right now."

"When one talks about foreign investment in this
industry, this is an enormous mess," said Juan Cole,
professor of modern Middle East history at the
University of Michigan, since there's no rule on
investor property rights and no finalized deal on the
extent of federalism.

"If Iraqis can create a framework where foreign
companies feel comfortable investing" and security of
oil infrastructure is increased, there will be some
progress, Cole said.

"If they can't do that, then you have Somalia," said
Cole, referring to the potentially oil-rich nation
that hasn't had a stable government since 1991.

"Having petroleum really does you no good whatsoever"
unless there is a governing framework supporting that,
Cole said.

--

(Comments to energy@xxxxxxx)