Talks yield oil industry revival plan

After months of contentious negotiations over the postwar spoils of Iraq’s most valuable natural resource, the government announced Monday night that it had approved a draft plan to ramp up oil production and share the proceeds.

The agreement by the Iraqi Cabinet was touted as a major breakthrough. It must still be approved by parliament, but because all of Iraq’s vested ethnic and regional interests are represented in the Cabinet, the deal was viewed as having overcome a significant hurdle.

The United States has long wanted to capitalize on Iraq’s oil, especially as a means of paying for the country’s reconstruction. Oil’s importance was reiterated in the Iraq Study Group report released in December.

The agreement would open the door to international investment in Iraq’s oil industry -- a bonanza for foreign companies -- and produce revenue for a nation badly in need of money to rebuild.

Iraq’s oil riches lie predominantly in the Kurdish-controlled north and the Shiite-controlled south. Reaching an agreement essentially required both factions to be willing to share their bounty with Sunnis in the middle -- a particularly painful prospect as Sunnis under Saddam Hussein controlled the entire government.

But there were also more complex questions of provincial sovereignty versus centralized national power.

Kurds, who are pushing a referendum on withdrawal from Iraq, wanted more control over their ability to strike contracts with foreign firms and spend the profits as they see fit.

According to U.S. Ambassador Zalmay Khalilzad’s office, all revenue from oil sales would go into a single national account, but all regions and provinces would have a seat on an energy policymaking body, and provinces would receive shares of revenue and have control over how they spent it.

“This is a significant political achievement because leaders representing all of Iraq’s communities have demonstrated that they can pull together to resolve difficult issues of vital national importance,” Khalilzad said in a statement.

In Washington, White House spokesman Tony Snow called a new oil law the “key linchpin” in Iraq’s recovery.

During a visit to Baghdad this month, Secretary of State Condoleezza Rice urged Iraqi leaders to pass the law, saying “it’s really critical” to show signs of national reconciliation.

The oil sector in Iraq has not been in full-scale development since the 1980s, and production has fallen far short of its potential because of government neglect of the industry’s infrastructure and attacks on installations. Fewer than a quarter of its fields have been developed; production volume fell by 8% in 2005.

Even so, it is the overwhelming source of revenue in Iraq and is expected to bring in $31 billion this year, based on projected exports of 1.7 million barrels a day at a price of $50 a barrel.

It was unclear what concessions finally led to the compromise, and the precise terms of the deal were not immediately available. The U.S. has been pressuring the Iraqi leadership for months to break the impasse, and one Sunni politician said Monday night that the deal had been brokered by Khalilzad himself.

Iraqi parliament members were cautious about the plan Monday night, noting that no details had been released. Still, most agreed that a Cabinet compromise was a good sign.

“Definitely, if there is a Cabinet accordance, this would be a good key for a future accordance in the parliament,” said Qusai Abdul-Wahab, a Shiite lawmaker.

Others predicted a tougher battle for the proposal on its way to becoming law.

“I think there will be great opposition to it in the parliament,” said Rashid al-Azzawi of the Sunni parliamentary bloc known as the Iraqi Accordance Front.

Some analysts say the law also will be viewed dimly as another way for the U.S. to get its hands on the country’s oil.

Antonia Juhasz, an analyst at the Institute for Policy Studies in Washington who has written extensively on the economic aspects of the invasion of Iraq, said throwing open the oil industry to foreign investment -- which no doubt would include U.S. interests -- would only heighten Iraqis’ distrust of the United States.

“It’s a critical law that is being rushed through Iraq’s government at a time when the government is highly susceptible to external pressure,” she said.

“Most people in Iraq assume the U.S. invasion was about oil. When the people of Iraq learn that the majority of their oil fields are being turned over to foreign private production ... it worries me. I wouldn’t want to be a soldier on the ground when the law passes.”

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christian.berthelsen@latimes.com

tina.susman@latimes.com

Times staff writer Saif Hameed contributed to this report.