Exploiting oil

January 10, 2008

Iraq's oil production rose significantly toward the end of 2007, and is poised to keep rising throughout 2008 - assuming sectarian strife doesn't pick up again. With the price of a barrel around $100, that means there's some real money coming into the country, and that makes this a crucial moment for Iraq to thrash out an oil policy once and for all that will equitably disburse revenue and put some incentive into the moribund drive for reconciliation.

In November and December, production hit 2.4 million barrels a day, which, with the exception of a single month in 2004, is the highest since before the war began. Of that amount, 1.9 million barrels were being exported. In fact, a pipeline from Kirkuk to Turkey had to shut down recently - not because of sabotage but because the oil terminal in the Turkish port of Ceyhan had reached capacity. That's a problem, but from Iraq's point of view it's a good sort of problem to have.

Now, there are two major political stumbling blocks that have to be addressed before too much of the money from this oil flows to the wrong places. The Kurds, in the north, have been cutting their own deals, which infuriates the central government. Both sides have a point in this argument, but there's no real reason they can't reach an accommodation. If Baghdad wants to keep Kurdistan an integral part of Iraq, what's required is an understanding that oil contracts will be handled responsibly and the income distributed fairly.

The second problem is in finding a way to make ironclad assurances to the Sunni provinces, which lack oil, that they can share in its benefits. More than anything else, that could lead to some genuine reconciliation between Sunnis and Shiites.

But Sunni and Kurdish skepticism is understandable, and much of it has to do with corruption in the government and a fear that the dominant Shiites won't live up to their end of any bargain.

For instance, an oil ministry audit reportedly found that 21.5 million barrels of oil went missing in 2007. Most of that was from southern oil fields, in the Shiite stronghold. That's a figure that's unlikely to help build trust in the rest of the country.

Oil revenues offer Iraq its best chance at regaining its footing. Now is the time, as the American military surge begins to recede but while its effects on sectarian violence are still being felt, to use oil as a means of drawing the country together, before it becomes a factor that splits it apart.

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