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Update No: 055 - (27/11/07)

Oil production: optimism not warranted
Oil production is currently estimated to stand at 2.2 million bpd, but the prospects for improvements are dim. Even under the best circumstances production is not expected to exceed 3 million bpd before 2011 or 2012 and few believe that such optimistic scenario will be realized. For example, there is still no agreement on the Oil Law, the main points of disagreement concerning the exploration of undeveloped fields, production-sharing agreements and contracts already signed with foreign companies by the Kurdish regional government. The Kurds kept signing new contracts during late October and November, adding to the tension. 

Little economic development even in safe areas
The new law safeguarding investors' rights has not been implemented yet and even in the areas least affected by the insurgency, like most of the south, reconstruction has achieved little. Electricity supply has not even reached the pre-war levels yet. In Kurdistan, the city of Erbil has access to electricity just 7 hours a day, which of course is a major obstacle to economic development, even if the Kurdish regional government has big plans to turn Kurdistan into a business hub and agricultural provider for the region. For the moment being, the main priority seems to be to create jobs in the unproductive services sector: most of the money allocated from Baghdad (64%) to the Kurdish region is being spent on salaries, in practice almost eliminating unemployment.

Does the surge work?
Undoubtedly the level of violence has been decreasing for a few months now. There are signs that the reduction in the level of violence is leading a significant number of Iraqis who had sought refuge in neighbouring countries to return to Iraq. However, even some American officials are beginning to recognise that the current reduction in the level of violence is as much due to Iranian restraint as to the effect of the 'surge' in the presence of US troops. The Iranians are signalling that they want to make a deal with Washington, but will Washington listen? Another factor in reducing the violence is the formation of many local militias which cooperate with the government, particularly against foreign jihadists.

Government remains dysfunctional
Only 25 of 40 members of the cabinet are currently attending its meetings. Prime Minister Maliki managed to attract back into the government one of 6 former ministers belonging to the Sunni National Concord Front, but he has been expelled from the Front. Maliki is using strong-arm tactics to induce Sunnis to join the government. In November the main office of the Association of Muslim Scholars, one of the most influential Sunni organisations, was shut down by a government-sponsored Sunni religious foundation. The attempt seems clearly to isolate elements who support the insurgency or are ambiguous about it and encourage others who are more inclined to cooperate, but this approach is also fomenting conflict among Sunnis. A draft law meant to allow former Baathists into the government's ranks has been re-submitted to the parliament, but its prospects of being approved are still muted at best. Instead Maliki seems to have given up on Muqtada As-Sadr and his people; two of their ministers have been replaced and Maliki is allegedly trying to replace the other three who quit the cabinet months ago. The government is signalling its determination to stamp on Sadrist violence by allowing the judiciary to arrest and try two former members of the cabinet who stand accused of having channelled funds to the Sadrist militias and having cooperated with them. 

Right now Maliki can only count on what is left of the Shiite Alliance and the Kurds to keep the government running. That does not mean that there are no problems on this front too, however. The Kurds are refusing to pay any contributions to the central government coffers; although the amount would be marginal, the refusal has symbolic value. The Kurds are also starting to develop their own power grid, as reliance on the national one means constant disruption due to sabotage and inefficiency. Observers from Baghdad, however, might suspect other motives for the Kurds' move, such as preparing the ground for ever increasing autonomy.

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