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Published on Thursday, May 3, 2007 by New York Times

Iraqi Blocs Opposed to Draft Oil Bill

by Edward Wong / Sheryl Gay Stolberg

ERBIL, Iraq - Kurdish and Sunni Arab officials expressed deep reservations on Wednesday about the draft version of a national oil law and related legislation, misgivings that could derail one of the benchmark measures of progress in Iraq laid down by President Bush.

The draft law, which establishes a framework for the distribution of oil revenues, was approved by the Iraqi cabinet in late February after months of negotiations. The White House was hoping for quick passage to lay the groundwork for a political settlement among the country's ethnic and sectarian factions. But the new Kurdish concerns have created doubts about the bill even before Parliament is to pick it up for debate.

The issue comes at a delicate moment for Mr. Bush, who on Wednesday began negotiations with Congressional Democrats over a new war-spending measure.

The president vetoed a $124 billion bill on Tuesday because it included timetables for troop withdrawals, and a House vote on Wednesday fell short of the two-thirds majority needed to override the veto, with 222 voting in favor and 203 opposing the override.

In a speech to a construction industry trade group in Washington, Mr. Bush said he was "confident that with good will on both sides, that we can move beyond political statements" and agree on a new measure.

But he continued to criticize Congress for trying to use the bill to dictate timelines for withdrawal.

"The question is, 'Who ought to make that decision, the Congress or the commanders?' " Mr. Bush said. "As you know, my position is clear - I'm the commander guy."

In Iraq, the Kurds have taken issue with a new provision that was quietly packaged with the draft oil law by the Shiite-led Oil Ministry last month. The measure would essentially cede control of the management of nearly all known oil fields and related contracts to a state-run oil company to be established after passage of the law, said a spokesman for the Kurdish regional government.

The spokesman, Khalid Salih, said the provision violated a clause in the Constitution that says the central government must work with regional governments to determine management of known fields that have not been developed. The Kurds, who have enjoyed de facto independence in the north since 1991, have been arguing for maximum regional control over oil contracts.

The provision is part of four so-called annexes that are to be debated with the draft oil law in Parliament. Any objection to one or more of the annexes will stall passage of the law.

"We are worried about these ideas put into the annexes," Mr. Salih said in an interview in Erbil, the capital of Iraqi Kurdistan. "It worries us a lot." If the law and the annexes go to a vote before Parliament, a rejection by the Kurdish bloc alone, which holds 58 of 275 seats, would not doom the law. But Parliament operates by consensus, and members say it is almost certain that no law regarding oil will pass without the approval of the Kurds.

A senior Shiite Arab legislator, Sheik Jalaladin al-Saghir, said the concerns raised by the Kurds amounted to a bargaining tactic. "I think it's a maneuver," he said, adding that he believed the Kurds "will move forward to pass the law since everybody needs it."

Contributing a further layer of complication, a Sunni Arab legislator said Wednesday evening that the main Sunni Arab bloc, which has 44 legislative seats, objected to any discussion of the law in Parliament at this time. "Acceleration in presenting it is inappropriate since the security condition is not encouraging," said the legislator, Saleem Abdullah. He said Sunni Arabs were also worried that the law would give foreign companies too large a role in the country's oil industry. Sunni Arab political leaders supported cabinet approval of the draft law, but appear ambivalent now.

White House officials have said passage of the oil law is one of four major benchmarks they would like the Iraqi government to meet before fall.

During a visit to Baghdad last month, Defense Secretary Robert M. Gates told the Iraqi prime minister, Nuri Kamal al-Maliki, that Mr. Bush would weigh Iraq's commitment to meeting the goals when he decided at the end of the summer whether to extend the recent troop increase.

Differences on benchmarks for the Iraqi government are a central issue in the spending-bill talks between Mr. Bush and Democrats. Democrats, conceding they are unable to use the bill to force the withdrawal of troops, hope to write new benchmarks into the legislation, with consequences if the goals are not met.

Speaking to reporters after Wednesday's meeting, Senator Harry Reid, the Democratic leader, said Democrats were determined that the bill would include "language in it that has the Iraqis take care of their own country." But the White House is likely to resist any attempt to punish the Iraqis for failure to reach certain goals, and Republicans say the president would consider benchmarks only if they are nonbinding.

"I think Republicans and the president are amenable to some benchmarks," said Senator Trent Lott of Mississippi, the No. 2 Republican, "provided that they don't slop over into trying to dictate to the commander in chief or the commanders on the ground."

The draft oil law provides for the distribution of revenues from all current and future oil fields to regions or provinces based on population. That agreement was meant to assuage the fears of the Sunnis, who suspect that the Shiites and Kurds are conspiring to hoard oil wealth, which is concentrated in the areas they dominate.

The minority Sunni Arabs are at the heart of the insurgency against the Shiite-led government, and hold swaths of land in western and northern Iraq that produce little oil, though geologists believe there are substantial untapped reserves there.

The Sunnis have been pushing for centralized control of the oil industry to assure equitable distribution of the revenues, while the Kurds have favored strong regional control. The Shiites have fallen somewhere in between.

The Kurds held up cabinet approval of the draft law for months, seeking to ensure that it guaranteed maximum regional autonomy to sign oil contracts. They fear that the central government might steer exploration and development contracts toward the Shiite-dominated south, at the expense of other regions.

The Kurds recently discovered two fields in northern Iraq, after signing contracts with a Norwegian and a Turkish company. But on Wednesday the Iraqi oil minister, Hussain al-Shahristani, a Shiite, said at a conference in Saudi Arabia that any contracts signed by the Kurds before passage of the oil law were considered invalid and illegal, news agencies reported.

In Erbil, Mr. Salih, the Kurdish spokesman, said the Kurdish contracts were legal and "had been prepared according to international standards and norms."

The draft law approved by the Iraqi cabinet says regions may enter into contracts, but a powerful new central body called the Federal Oil and Gas Council would have the power to "prevent" the contracts from going forward if they did not meet certain standards. A panel of oil experts from inside and outside Iraq would advise the federal council on the contracts.

Oil industry analysts estimate the country's proven oil reserves at 115 billion barrels. Iraqi oil production peaked at 3.7 million barrels a day in 1979, according to the United States Department of Energy. Production stood at 2.6 million barrels a day before the 2003 invasion, but has dropped since. Passage of the draft law is seen as critical for encouraging the foreign investment needed to lift production levels.

The draft oil law would allow regions to enter into production-sharing agreements with foreign companies, which some Iraqis and critics of the Bush administration say could lead to foreigners reaping too much of the country's oil wealth.

Iraqi officials say all contracts will be subjected to a fair bidding process, but there are fears that American companies could be favored.

In March, Mr. Shahristani said at an industry conference in Austria that 27 fields currently producing oil would be managed by the Iraq National Oil Company, which was shut down by Saddam Hussein in 1987 but would be re-established once the draft oil law was passed. Another 65 known fields would be offered for exploration and development contracts through rounds of bidding.

Edward Wong reported from Erbil, and Sheryl Gay Stolberg from Washington. Khalid al-Ansary contributed reporting from Baghdad, and Jeff Zeleny from Washington.

Copyright 2007 The New York Times Company

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