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Update No: 029 - (27/09/05)

The new constitution: a tool of pacification?
The presentation of the final draft of the new Iraqi constitution did little to pacify the country. Instead, it appeared to set it for increased trouble. As predicted, the Sunni Arab community was very unhappy about the shape taken by the new constitution, despite claims by its Shiite and Kurdish counterparts that a serious attempt to address the concerns of the Sunni community had been made. The issue of federalism and the purge of former Baathist members were the main controversial points. However, even within the Shiite alliance there is disagreement about the constitution. The followers of the ambitious Muqtada Al-Sadr are the main opponents of the constitution among the Shiites and declared that the process of its elaboration has been led by the occupying forces and their collaborators. After coming closer to the mainstream Shiites in the months immediately before and after the elections, the Sadrists are now moving again towards a spoilers' position. Tension among the Shiites led to violent clashes in several southern town and cities during late August. The Sadrists count on the support of at least 21 members of parliament and two ministers, who threatened to resign in protest for the attack against an office of Al-Sadr in Najaf. 
In the meanwhile, the most extremist jihadist groups decided that the dissatisfaction of the Sunnis offered them an opportunity to mobilise the population behind them and announced the start of an all-out war against the Shiites. Even if the mainstream Sunni organisations condemned the declaration, a new campaign of terror was unleashed in Baghdad and elsewhere. On the Shiite side, even those who do not sympathise with Muqtad Al-Sadr are beginning to lay the groundwork for demanding the departure of US forces in a couple of years or so. A report prepared by a committee of the National Assembly stated that there will be no effective sovereignty until "occupation forces" are in Iraq. The report is the first sign that mainstream Shiite groups are beginning to snipe at the occupation forces. The report asked the government to repeal the immunity from prosecution by Iraqi courts granted by the Coalition Provisional Authority to foreign nationals. Only the Kurds do not seem keen on seeing the Americans off.

Oil industry exits stagnation?
The Iraqi Oil Ministry showed new signs of optimism in September, as a 110,000 bpd increase in exports was expected compared to August. By the end of the year, another 200-400,000 bpd are expected to be added, bringing total exports to 1.8-2 million bpd. Although sabotage of the oil infrastructure continued, the northern oil fields managed to export 3 million barrels in September. Production is also increasing in the south, where sabotage is more limited. However, the reluctance of the US government to guarantee strong legal protection to foreign companies working for the oil industry meant that none of them accepted to work on the improvement of existing oil wells. KBR oil, a subsidiary of Halliburton, had won the contract, but later renounced it. The US$37 million contract has now been awarded to an Iraqi state company, Iraqi Southern Oil, which does not have the expertise. Its staff will have to be trained, resulting in additional delays. The project is now expected to increase production by 500,000 bpd, a figure which has been revised downwards from an earlier assessment of 1,000,000 bpd. To ordinary citizens, the good news of increased exports was overshadowed by the decision of oil Minister Chalabi to order half of the country's cars off the road every day, in an effort to spare fuel and limit imports. Iraq's refineries cannot produce enough car fuel, in part because much of it is illegally exported due to its very low and heavily subsidised prices.

Reconstruction or war?
It has finally been admitted by US officials that much of the reconstruction funds allocated to Iraq have been diverted to security. For example, in the case of water sanitation, half of the US5.2 billion budget has been diverted. Water projects worth US$200 million have been completed so far, but even a quarter of them no longer work properly because of looting, inadequate staffing and other problems. The result has been a surge in dehydration and diarrhea cases among children and the elderly. The production of electricity is another area where reconstruction is doing very badly.
On a positive note in September the first phase of the restructuring of Iraq's debts was completed. The negotiations on the first US$750 million ended with 78% of the claimants accepting the offer (10.25% of the original debt plus due interests), while just 2% rejected it altogether. Most of the restructuring is still to come, with another over US19$ billion of commercial claims, which themselves are just 15% of total outstanding debt.  

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