Oil Deals in Iraqi Kurdistan

A political agreement between Kurdish, Shia and Sunni political parties over how to share Iraq's oil wealth is crucial to the future of Iraq's federal structure, indeed the unity of the country itself. Yet a draft version of a new oil law -- which would give Kurds the right to sign their own oil contracts in Kurdish-controlled northern Iraq -- has languished for about a year in parliament in Baghdad.

So Kurds have been taking matters into their own hands. This week, the Kurdistan Regional Gvernment signed seven new contracts with foreign production companies to develop oil and gas fields in their territory. This is the second big round of contracts signed by the Kurds, and has been met with complaints from Baghdad and Washington, as well as much speculation in the media as to whether or not these oil deals would help fuel the push for Kurdish independence.

But in fact these oil contracts, and oil development in northern Iraq in general, reveal just how tightly Kurds are bound to federal Iraq, whether they like it or not. First of all, Kurdistan isn't going to be bathing in black gold anytime soon. It'll take about five years before these particular agreements start producing actual oil and gas. And even once the gushers start, Kurds can't just go it alone in the international oil markets. In order to sell their oil, they need Iraq's pipelines to Turkey and Syria. These neighboring countries -- which are hostile to the whole idea of a separate Kurdish state -- aren't about to allow Kurds to build their own pipelines, unless Kurds made it seriously worth their while. But Kurds will have a hard time sharing the wealth. They signed these contracts in accordance with Iraq's yet un-passed oil legislation, which divides the revenue between the federal government and the regions. Kurdistan's take is just about 17 percent.

The reality is that the Kurds went ahead with these contracts because the development of their region -- the one safe, sucessfull part of the country -- is actually in limbo. Foreign investment that was supposed to come pouring into the region has largely been a no show in the absence of the oil law. Most of the new wealth in Kurdistan comes from trade and government spending, but even that is erratic, since the Kurdish budget comes from Baghdad. That is when it comes. When I was in Kurdistan earlier this month, the Kurdish peshmerga soldiers hadn't been paid in about 60 days.

As with oil, Kurdistan faces a series of unresolved issues with the Iraqi state, especially its boundaries with the rest of Iraq, and the status of Kirkuk. Resolving them doesn't necessarily set the stage for the break-up of Iraq. But leaving them unresolved sets the stage for the breakdown of Iraqi Kurdistan.

--Andrew Lee Butters/Beirut