Ongoing quarrels over oil in Iraq are adding to the country's woes, writes Salah Nasrawi As Iraqi oil exports hit a 30-year record last week, a dispute between the Shia-led central government and the semi-autonomous northern Kurdish region over the latter's oil wealth worsened amid increasing signs that the world's major oil corporations might be fueling the conflict. The clash, and hectic efforts to increase production partially to help meet mounting demands for oil on international markets, is also reinforcing the notion that oil played a leading role in the US-led invasion of the country in 2003 and leveraged the ensuing sectarian and political conflict. Iraq's oil minister said on Sunday that the country's oil exports had reached 2.317 million barrels per day (mbpd) in March, which is the highest since 1980. Abdel-Karim Luaibi said he expected Iraq's oil exports to be at 2.3 million barrels per day, or slightly more, in April. The rise in crude production and the revenues it is expected to bring should have been a blessing for the cash-strapped country. However, many Iraqis do not necessarily see oil as a blessing, as they see their country engulfed in endless infighting over natural resources. Tension has risen in recent weeks between Baghdad and the Kurdish regional government after leaders exchanged accusations of mismanagement of the country's energy sector and alleged smuggling oil outside Iraq without depositing the revenues in the state's coffers. One reason behind the dispute is that the leaders of the political and ethnic groups that took control after the invasion that toppled former Iraqi president Saddam Hussein have failed to agree on a controversial and US-proposed gas and oil law that would regulate drilling and sales in Iraq. Under the post-Saddam constitution the leaders agreed instead that the central government would maintain control over resources from the crude reserves in exchange for an annual chunk of Iraq's budget being given to each of Iraq's 18 provinces. Since then, the Kurdish government has been receiving 17 per cent of the annual state budget, which is allocated to the three Kurdish provinces under its control. Much of the recent trouble started when the Kurdish authorities started selling oil and gas after signing contracts with foreign oil companies to work there without the central government's approval. The Kurdish government is believed to have signed some 47 oil deals with international firms so far. The crisis deepened after the Baghdad government took an aggressive approach and threatened foreign companies in Kurdistan with sanctions, denying them exploration opportunities in the vast southern oil fields if they continued operations in Kurdistan. Last week, the Baghdad government accused the Kurdish authorities of smuggling oil produced in the region across the border, mainly to Iran and Afghanistan, instead of fulfilling export obligations. Iraq's Shia Deputy Prime Minister for Energy Hussein Al-Shahristani claimed that the Baghdad government's losses from smuggling had exceeded $5 billion over the past two years. The charges came after the Kurdistan government had a day earlier halted oil exports through Turkey of around 50,000 barrels per day, in order to protest against the central government's failure to pay oil companies there. The Kurds also accused the Baghdad government of tapping pipelines illegally and smuggling oil to neighbouring Iran from the southern Basra oilfields and selling some 15,000 bpd to Israel through the Jordanian port of Aqaba. There are no official estimates of Kurdistan's oil reserves, but the region could hold 20-30 billion barrels of undiscovered oil. Some Kurds say that new explorations could lead to new fields, raising the figure to 100 billion barrels over the next five years. In what may be attempts to consolidate its grip on the energy sector, Kurdistan is trying to take over some of the foreign companies working in the region, including London stock-exchange-listed Heritage and Norway's DNO International. A report by Reuters based on investigations of a London-based banker with the financial group JP Morgan revealed on Sunday that the government of the Kurdish region had been involved in a potential takeover bid for Heritage. The report said that the Kurdish government had bought a stake in DNO International. The Kurds are also considering building a separate oil pipeline to Turkey, which, if launched, could be seen by Iraqi government officials as being a serious violation of the country's sovereignty and a slap in the face for the central government. While it has tolerated small and medium-sized companies exploring in the Kurdish oilfields, the central Iraqi government has been infuriated by major firms, such as Exxon Mobil which has signed contracts to explore six blocks in the Kurdish region, working there. Adding to the fury, three of the areas which the American oil giant is set to develop are in disputed territory claimed by the Kurdish administration. In order to deny the development of an independent Kurdish oil market, the Iraqi government has banned Exxon from participating in future rounds of bidding to develop new oil fields in the country and has removed it from a leading role in developing a multi-billion-dollar water injection facility in southern Iraq. Some Iraqi officials have also threatened that the oil major could lose its contract to develop the massive West Qurna I field near Basra unless it relinquishes plans to explore in Kurdistan. There are many reasons why many Iraqis are suspicious of Exxon and other oil majors, some of them, such as France's Total, reportedly waiting to see the outcome of the dispute. While western analysts say that incentives such as lucrative production-sharing contracts and a better security environment in Kurdistan could be behind the contracts with the Kurdish government, some Iraqis believe that greed and political factors are more likely to explain them. Exxon has refrained from commenting publicly on the dispute, while the central government and the Kurdish authorities keep quarreling over the contracts. By maintaining its silence, Exxon has been seen by some Iraqis as insensitive to their worries and even encouraging of the country's strife. Others blame the still unendorsed hydrocarbons law, first proposed by the US-led occupation authorities, seeing this as having laid the foundations for the present trouble between the central government in Baghdad and Iraqi Kurdistan. The law, they believe, was drafted to help foreign investors make easy deals with local authorities in Iraq to exploit the world's number four oil reserves at the expense of the central government. Meanwhile, the clash over resources has fed into a wider conflict between Iraqi Shia Arabs and Kurds over power-sharing that risks upsetting Iraq's fragile sectarian and ethnic balance. Kurdish leader Masoud Barzani has accused Baghdad of considering using a "military solution" against the Kurds. In several interviews while in Washington this week, Barzani claimed that Baghdad was preparing to use F-16 fighter planes it had bought from the United States against the Kurds. Barzani warned that his administration might consider holding a referendum on the Kurds remaining in Iraq if the crisis continued. A previously unknown Shia militia group, the Brave Sons of Iraq, also this week issued a warning to hundreds of thousands of Kurds living in Baghdad and other Arab-dominated towns to leave their homes or be killed. The threat was followed by bomb attacks on the offices of Kurdish parties in these towns in a further sign of escalation, adding additional danger to the quarrels over oil. With another crisis lingering between Shias and Arab Sunnis over power-sharing and wealth distribution, Iraq is now entering a decisive phase in its political transition, and rival ethnic and sectarian leaders face having quickly to come to terms with a process that looks as if it is slipping out of their control.
