THE POLITICS OF IRAQ'S HYDROCARBONS LAW

Iraq's Council of Ministers overcame its internal differences more quickly than expected and adopted on February 26 a draft hydrocarbons law to be submitted to the Iraqi Parliament. A formal vote was announced for the end of May. The draft is an important milestone. However, it stops short of resolving all issues because it leaves aside key matters and raises almost as many questions as it provides answers. The debate is not yet over, since the current version-which can still be amended by the Council of Representatives-has triggered, as would have been anticipated, a nationalist reaction among Iraqi oil experts. The May 30 deadline is also likely to slip because Kurdish support is contingent upon finding a satisfactory solution for the sharing of oil revenue.

*Speed over comprehensiveness. Under strong pressure from Washington to deliver one of the benchmarks mentioned by President George W. Bush in his January 10 address to the American people, the Iraqi cabinet chose to set aside crucial issues such as the distribution of the oil revenues, which is to be decided by a separate law, and the detailed model contracts.

*Sectarianism slides from politics to the oil sector. The quid pro quo for securing Kurds' acceptance of a formal last word by the central authorities for any contract signed by the Kurdish Regional Government is the institutionalization of ethnic and sectarian trends within the different bodies responsible for the oil sector at the national level.

*The draft does not clear all ambiguities over the decision-making process. Accommodating requirements from all sides has sometimes resulted in contradictory provisions, and international oil companies (IOCs) will have difficulty finding the solid legal background they need.

*The recovery of the oil sector will remain a distant perspective as long as security issues are not solved. The upcoming formal adoption of a hydrocarbons law has not significantly changed CERA's outlook for Iraq's production, since IOCs will be reluctant to commit to huge investment and send staff until security is guaranteed.

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