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Allawi tries comeback
As expected, the Sadrists quit the ruling coalition in Baghdad in protest at the ongoing operations against his militias. Until now, As Sadr had been withholding his men from fighting back, in order not to create too wide a gap with Prime Minister Al-Maliki, but there are now fears that violence might increase in the south. The Sadrist militias, however, might have decided not to fight back with a general insurrection, as they did already twice in the past, but with more refined guerrilla tactics in order to avoid heavy casualties. As-Sadr has openly invited his men to prioritise fighting the Americans as opposed to other Iraqis. Maliki announced that he would replace the departing Sadrists with professional and impartial appointees, but his position in the parliament is now very weak.
Sensing Mailki’s weakness, former Prime Minister Allawi is stepping up his efforts to put together an alternative coalition and replace him. He claims that he want to form a non-sectarian government, although his previous one was as sectarian as Maliki’s. Amongst his battle horses are his support for repealing the de-Baathification laws and his contacts with the Sunnis, including sections of the insurgency. Another attempt to form a new alliance failed in December, when Maliki’s Al’Dawah party refused to join it, opting instead to remain allied with the Sadrists. 

Japan eyes Iraqi oil
The Japanese government has agreed to lend US$860 million on very favourable terms to contribute to the rebuilding of the oil and power infrastructure. Japanese interest in Iraqi oil has been growing recently, because of the decision of the Iranian government to slash the share of Japex in the Azadegan oil field from 75% to 10%. Japex is already evaluating four oil fields in Iraq, but is negotiating an extension of its activities. Iraqi oil output has been pretty stable recently, although at low levels. During March, output was at 2 million bpd, with exports at 1.56 million, just 10,000 bpd down from February. The government has also invited bids for drilling 100 oil wells in southern Iraq and according to the oil ministry Syrian, Chinese and Iranian firms are involved in the negotiations. In general, while security and political concerns are keeping Western oil firms on the margins, Asian companies have been moving much more dynamically since the oil law has reached the draft stage. Oil industry experts believe that the first oil contracts will be awarded to Chinese, Vietnamese, Indian and Indonesian firms. These will be mostly small contracts, not exceeding 60-70,000 bpd each, but it also believed that the Asians will grab some of the largest contracts. Western firms will eventually get contracts, if for no other reasons than their technical prowess, but that might still be quite a while away.

The Kurdish exception
Violence and corruption continue to prevent the Iraqi economy from showing signs of recovery. Losses due to government corruption have been estimated at US$8 billion in 2,600 different corruption cases over the last three years, according to the Iraqi Public Integrity Commission. Since the constitution grants ministers the power to block investigations, it is not surprising that little progress is being made on this front. Only in the Kurdish region security is good enough for foreigners to travel unaccompanied and the local economy is booming. Even there, however, the boom mainly concerns the property sector and has led to inflationary pressures compounded by unreliable supplies from the rest of Iraq. The absence of a working banking sector is another major hindrance to economic development in Iraqi Kurdistan, although a few foreign banks have been opening up offices recently. There is also a need for infrastructural development and local politicians argue that the region needs and deserves more than the 17% of oil revenue currently allocated to it. Foreign investment has mainly been limited to Turkish companies, with few Western ones coming in. 

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