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Update No: 059 - (26/03/08)

Little progress on reconciliation
The main political event in March was a national reconciliation conference, chaired by Prime Minister Maliki. Despite intense US pressure towards a more determined effort at reconciliation, the conference was not very successful. Two of the main groups present in the parliament, the Sadrists and the main Sunni alliance (Accordance Front), stayed out of it, alleging that they were not even invited. Despite some progress towards satisfying Sunni demands, such as the law allowing former Baathists to hold government jobs and the amnesty to 3,500 prisoners, there are still several bones of contention pending, such as the pending execution of former defense minister Sultan Hashim al-Taie, whom Maliki refuses to spare as requested by the Sunnis.

Oil is the key to peace
The sense that the progress recorded in recent months remains fragile is highlighted by a return of large scale terrorist attacks, as well as by the grumbling of the Sunni militias, unhappy about the precarious status and lack of recognition. Maliki traveled to the Sunni areas north of Baghdad to reassure the militias that they would be offered jobs and that the 'doors of all the establishments" would be open to them. A key factor in furthering reconciliation is unlocking the oil production potential of the country, so that plenty of patronage might become available for redistribution. Production at the beginning of March was running at 2.4 million bpd, a slight increase on previous months, but nowhere enough to pacify all claimants to a share of Iraqi state resources. The increase remains mostly due to the improved security situation in the north, rather than to any technical breakthrough. Most natural gas produced is still being burned as waste, because the facilities to export it are not in place. The urgency of getting more investment into the oil sector is demonstrated by the fact that US military commander Petraeus has been directly calling Western oil giants, inviting them to invest in Iraq. The unusual step might be a sign of despair at the failure of Iraq to approve the draft oil law. 

Oil: moving ahead without law
The Oil Ministry is still negotiating with foreign investors on the basis of the directives of Saddam Hussein's government, which allow only for limited two-year deals and are far from appetizing for the multinationals. The only achievement in these contacts with the oil companies has so far been serious negotiations with Shell, BP, ExxonMobil, Chevron and Total for the delivery of technical support for five of the existing oil fields. Such technical assistance should in the future lead to a 500,000 bpd increase in production. The oil ministry itself seems to have given up on the approval of the oil law and is now inviting oil companies to line-up for the development of existing fields, which will might authorised by the cabinet even in the absence of a law. The oil companies are wary of investing billions without an appropriate legal framework, but have to keep talking and negotiating in order to stay in the graces of the ministry. Future prospects of the oil sector are complicated by the fact that among Iraqis nationalist positions with regard to the exploitation of natural resources are getting stronger. Even among Shias there is rising opposition to production-sharing agreements, which are what Western oil companies want. The Kurds, who have the most conciliatory positions vis--vis foreign companies, will nonetheless be taking an estimated 87% of oil production in their autonomous region, a high share by the usual standards of production-sharing agreements. Even officials of the Iraqi National Oil Company now say that foreign investors will not be offered production-sharing agreements, but contracts based on fixed returns, arguing that the appetite for Iraqi oil is so great that the multinationals will still be willing to accept.

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