In Kirkuk, it is often said that oil has brought nothing but suffering. "Kirkuk is like a camel," says local councillor Mohammed al-Jubouri. "The camel carries gold and riches on its back, but ends up eating spiny shrubs scavenged in the desert."
And yet the Iraqi city’s residents sit on oil reserves worth billions of dollars, an estimated 13% of Iraq’s proven resources.
There - and in neighbouring Kurdish provinces - oil dominates local politics and the stand-off with Iraq’s central government on local oil reserves shows little sign of easing.
The future of Kirkuk and of its oilfields hangs on negotiations between the new Kurdish president to be elected on Saturday and the central government in Baghdad.
The incumbent president Massud Barzani is expected to be re-elected and his party, the Kurdistan Democratic Party (KDP) and the Patriotic Union of Kurdistan (PUK), are set to sweep to victory in the parliamentary elections. Both the KDP and PUK want to absorb Kirkuk into their vastly autonomous Kurdish territory.
These parties are likely to press for a referendum on disputed territories including Kirkuk, an ethnically-mixed city shared by Kurds, Turkmen and Arabs, who don't want to join the autonomous Kurdish region. The Iraqi government, keen to keep a grip on oil reserves, also wants to delay a vote.
Oil legislation on stand-by
French historian Edouard Metenier told FRANCE 24 that Kurdish leaders are unlikely to scale back their demands. While Kurdish leaders have claimed oil-rich Kirkuk since 2003, “they are now pushing into other areas such as Mosul in the north and Khanaqin in the east,” he said, warning that such “advances have caused clashes with the central Iraqi government and its military.”
Meanwhile, Iraqi leaders have also failed to reach an agreement over legislation governing the oil industry, a draft of which allows production share agreements with foreign companies, a contentious issue for nationalist Iraqis, and details how oil revenues are distributed.
It is unlikely, though, that any agreement will be reached before next year, said Didier Houssin, an International Energy Agency director, in an interview with FRANCE 24.
“A project has been in the pipelines since last year, but it’s unrealistic that an agreement will be reached before 2010 due to upcoming elections and opposition among executives in state oil companies,” said Housssin. Meanwhile, Kurdistan and Baghdad play the blame-game over signing of oil contracts with foreign firms.
To date, however, the Kurdish autonomous region has struck up more than 30 profit-sharing contracts with foreign companies, taking a swipe at Baghdad, who says such deals are illegal.
Western energy giants on the sidelines
In the absence of post-invasion oil legislation, Baghdad is nonetheless seeking to strike up service contracts with foreign firms to boost crude output, currently estimated at 2.4 million barrels per day. In a surprising move, thirsty oil giants walked away from an auction on Iraq’s ample oil and gas reserves on June 30, complaining Iraqi officials were too tightfisted.
Only one contract was struck with British Petrolium (BP) and its partner, the China National Petroleum Corporation (CNPC), to develop Iraq’s second largest oilfield, Rumaila, under terms energy analysts say are far from sweet.
BP and CNPC will be paid two dollars for each barrel of oil that they extract in Rumaila as part of their service contracts. They have also pledged to increase production from one million barrels per day to 2.85 million barrels per day within six years, in a relatively hostile environment.
“South Oil Company [Iraqi state company] workers publicly said that [an agreement with a foreign firm] was not necessary in Rumaila,” said Francis Perrin of the Paris-based Arab Petroleum Research Center, in an interview with FRANCE 24. “BP is not entering friendly territory, nobody is going to give them a red-carpet welcome,” he said.
But at a time when the Iraqi budget deficit reaches at least 18 billion dollars, as published in the Los Angeles Times, the Iraqi government says foreign investment and expertise are necessary to boost oil production.
But until those laws are passed, the Iraq oil ministry's steps to renew the energy sector will be shrouded by legal doubts, as Iraqi members of parliament are currently threatening to block the ministry's recent deal over Rumaila.
During the June 30 auction, the oil ministry also sought to sell off two fields in the contentious Kirkuk area, drawing ire from Kurdish leaders who said they should have been consulted beforehand. And quite predictably, the two Kirkuk fields drew no bidders.