This report is the fifth in a weekly series to offer an assessment of the Supplemental benchmarks and measure whether any real progress is being made in Iraq.

Equitable Distribution of Iraq’s Oil Resources

• Enacting and implementing legislation to ensure the equitable distribution of hydrocarbon resources of the people of Iraq without regard to the sect or ethnicity of recipients, and enacting and implementing legislation to ensure that the energy resources of Iraq benefit Sunni Arabs, Shi’a Arabs, Kurds, and other Iraqi citizens in an equitable manner.

Agreeing on a system for fairly dividing oil revenues between Shi’a, Kurds, and Sunnis is crucial to national reconciliation. Unfortunately, the oil law—which was recently approved by the Cabinet and awaits passage through Parliament—does not accomplish this goal. Instead, the law has the potential to harden sectarian divisions and further exacerbate the ongoing civil wars. Sunni leaders have come out against the law, including an influential group of clerics who issued a religious edict condemning it. The largest Shi’a bloc in parliament opposes the law, and the leaders of the Kurdistan Regional Government have not yet have seen the final version. Ramming through a major law that is opposed by key minority groups is not a recipe for reconciliation.

Even if the oil law were to pass, it still does not address many key questions on implementation. Moreover, oil production remains below prewar levels and corruption is causing massive losses. Unless these problems are addressed, the law itself is irrelevant.

The Current State of the Iraqi Oil Law

The Iraqi cabinet approved an amended draft oil law, but the law was pushed through without the support of Sunnis or the Kurdistan Regional Government and faces major opposition in parliament. The importance of the oil law is that it could help bring about national reconciliation by guaranteeing a fair division of oil revenues for Shi’a, Sunnis, and Kurds. Unfortunately, the law was approved by the cabinet while the Sunnis were boycotting the meetings. Muqtada Al Sadr’s party, which represents the largest group of Shi’a, has also objected to the law and the leaders of the Kurdistan Regional Government have not yet seen the final draft. [LA Times, 7/5/07 . AP, 7/4/07 ]

Sunni leaders are opposed to the law, including a group of influential religious leaders who issued a religious decree against it. An influential group of Sunni Muslim clerics, the Association of Muslim Scholars, issued a religious edict declaring that whoever supports the law “will be exposed to God's wrath and will have committed the crime of collaboration with the enemy.” A leader of the largest Sunni bloc in parliament warned that “Any draft law that is approved in the absence of the Iraqi Accordance Front only represents the groups that approved it…If there are some who want to cancel the voices of half of the Iraqi people then they take the responsibility.” [LA Times, 7/5/07 . AP, 7/4/07 ]

One of the most influential Shi’a parties in parliament has already rejected the law. The head of the Sadrist bloc in parliament, Nassar al-Rubaie, said, “We reject this copy of the oil and gas draft law because it left nothing of Iraq's unity.” [AP, 7/4/07 ]

The leaders of the Kurdistan Regional Government are opposed to the law. While the Kurdish Ministers in the Iraqi Cabinet voted for the law, the regional government in Northern Iraq has yet to see a new version. Without its support the law is unlikely to pass. [AP, 7/4/07 ]

The Iraqi government is in disarray. More than one-third of the 37 cabinet members were absent for the oil vote because of a boycott. BBC's Jim Muir, in Baghdad, says that, “Iraqi politics is in greater disarray than at any time since the 2003 invasion, and the bill's progress is unlikely to be smooth.” The Sunni Iraqi Accordance Front, along with the Shi’a Sadrist movement, is boycotting cabinet meetings due to disagreements with Prime Minister Maliki. One of Iraq's two vice presidents, Tarek al-Hashemi, a Sunni, remarked, “We haven't achieved anything after a year of participating in the government. We are depressed and sidelined, especially in terms of decision-making.” [Washington Post, 7/03/07 . Reuters, 7/02/07 ]

Flaws with the Oil Law

Iraq's oil law will mean little if the government cannot secure the pipelines and improve the infrastructure. Current oil production is still only at 2 million barrels/day, down 20% from prewar levels. Sabotage of pipelines is still prevalent and there has been an inadequate amount of infrastructure investment. [Brookings Institution, 7/2/07 ]

Corruption is still siphoning off a huge portion of Iraqi oil revenues. The head of Iraq's Public Integrity Commission, an Iraqi anti-corruption commission, said that Iraq has lost more than $8 billion through corruption and mismanagement in the last three years. Additionally, “between 100,000 and 300,000 barrels a day of Iraq's declared oil production over the past four years is unaccounted for and could have been siphoned off through corruption or smuggling, according to a draft GAO Report. Using an average of $50 a barrel, the report said the discrepancy was valued at $5 million to $15 million daily.” The report also acknowledges that part of the discrepancy may be due to misstated numbers, sabotage, and other factors. [Center for American Progress, 6/07 . NY Times, 5/12/07 ]

The passage of a hydrocarbon law would only constitute a framework for managing Iraq’s oil industry, but would not address many of the most difficult issues. “The draft law was expected to clearly assign roles, decentralize the development of oil and gas fields, centralize control of revenues, and grant regions and regional oil companies the right to draw up contracts with foreign companies for exploration and development of new oil fields... However, according to State Department officials, although the draft oil and gas law provides a necessary framework, some vital provisions, which will be in four annexes and companion legislation, have yet to be prepared.” the GAO reported. [Washington Post 7/01/07 . GAO, 5/07 ]

The oil law gives foreign companies access to the Iraqi oil fields but does require them to invest their earnings in the Iraqi economy, partner with Iraqi companies, hire Iraqi workers or share new technologies. The Iraq National Oil Company would have exclusive control of just 17 of Iraq's 80 known oil fields, leaving two-thirds of known — and all of its as yet undiscovered — fields open to foreign control. [International Herald Tribune 3/13/07 ]