Oil drop ends crude swagger

Falling oil prices will cut into Iraq’s budget next year, but they could serve as a wake-up call for the government.

They could prod Kurds and Arabs to reach an agreement on sensitive issues such as sharing oil revenue after nearly two years of deadlock. They could also become a factor in national elections planned for late 2009, if the population grows angrier at Iraq’s ruling parties.

Nearly every week, in their Friday sermons, Shiite Muslim clerics denounce the government for failing to improve electricity and water supply. A failure to spend more on providing services for citizens will only make things harder for the Iraqi government.

“The drop in oil prices would directly reflect on services,” said Ali Adeeb, a lawmaker with Prime Minister Nouri Maliki’s Islamic Dawa Party. A lack of improvement could bolster new parties competing for parliament seats next year.

Haidar Abadi, another Dawa lawmaker, said that the projected 2009 budget of $79 billion was based on oil fetching $80 a barrel. He recommended that the government draft its new budget on an estimate of $60 a barrel. On the bright side, he said, he hoped falling prices might allow greater room for compromise between Kurds and Arabs, who have butted heads over an oil law. The Kurds, who suffered under Saddam Hussein’s rule, have a historic distrust of Iraq’s Arab majority and want guarantees that they will be able to control the oil in their region and maintain autonomy from Baghdad.

In its original form, the legislation would have granted Iraqi provinces the right to sign contracts with foreign companies, but it has been stalled since February 2007. The Kurds have taken to signing oil contracts in defiance of the federal government. The dangers of declining revenue might persuade both sides to be more practical.

“You have to manage your resources more properly,” Abadi said.

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ned.parker@latimes.com