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Iraq Government Focusing on Rebuilding Oil Industry

Iraq's Kurds, Sunnis, and Shi'ites are bickering over how to distribute the nation's potentially vast oil revenue. In the meantime, energy officials are trying to rebuild the battered industry while saboteurs are busy attacking pipelines and other facilities.

Insurgents often attack Iraq's pipelines and other key oil facilities, leaving them in flames.

The damage is frustrating efforts to rebuild Iraq's crucial oil industry, which is the most important sector of the nation's economy.

Iraq currently produces around two and a half million barrels of oil a day, far below its potential. Iraq's Oil Minister, Hussain al-Shahristani, wants to change that. "Our current plan is to increase production of crude oil over the coming five years to between four and four-and-a-half million barrels per day."

Al-Shahristani says he hopes to quickly make deals with major foreign oil companies, and use their advanced technology to help Iraq reach its huge potential.

But former Iraqi Oil Minister Issam Al-Chalabi says the dangerous security situation has kept all but some small foreign companies out of the country.

"There is no way that any company, any proper company, an international oil company or national oil company or anybody with some sense in his mind would be willing to go into Iraq invest money and develop those services."

Al-Chalabi says major oil companies, like ExxonMobil or Shell, are also discouraged by uncertainties over Iraq's proposed laws governing their industry. The political situation is complicated by the uneven distribution of Iraq's oil.

The bulk of the petroleum is in the southern part of the country, mostly populated by Shi'ites. Some Shi'ite leaders are pressing for autonomy for their region. Another portion of the oil is in northern Iraq where many Kurds live. The area already enjoys considerable autonomy from the central government. The center of the country is thought to contain much less oil and is home to the Sunni Arabs who ruled the nation under Saddam Hussein.

Each of the Iraqi factions is bargaining hard for laws that favor their access to this crucial resource. Iraq's new constitution says the nation's oil belongs to all Iraqis, but the rival factions interpret the document in different ways. Kurds have already signed agreements with small foreign oil companies searching for new oil.

But Iraq's Oil Minister al-Shahristani says such contracts should be signed or approved by the central government. That prompted the Prime Minister of the Kurdistan Region of northern Iraq, Nechirvan Barzani, to threaten to break away from the country. And prompted visiting U.S. Secretary of State Condoleezza Rice to try to smooth things over with Kurdistan President Massoud Barzani.

"As for the revenues of oil, stipulated in the constitution, we are for a fair distribution of the oil revenues all over Iraq," said the president.

The Kurdish leader did not repeat his colleague's strong rhetoric in public.

Meantime, the Kurdistan regional legislature has been working on a new "Petroleum Law" while the central government has been working on a new "Hydrocarbon Law."

It is not clear if these different pieces of legislation will resolve the dispute between the central government and the Kurdistan regional government, or ease friction over oil between Sunni and Shi'ites in the south.

But an influential study of Iraq by leading U.S. experts [the Iraq Study Group] called an oil law guaranteeing equitable revenue distribution of revenues crucial to national reconciliation. And experts say clarifying the legal status of foreign oil companies will make it easier for Iraq to attract the foreign expertise and technology needed to rebuild the oil industry.

Iraq has opened some new facilities, such as a refinery in Najaf, with ceremony and heavy security. "God willing, this refinery could process 30,000 barrels a day," said an oil engineer at the refinery.

If political disputes are solved and security improved, many experts say Iraq could eventually produce about six million barrels of crude oil per day.

Former oil minister Al-Chalabi says current high oil prices mean a healthy oil industry could bring in $100-billion a year in revenue, enough to easily rebuild the oil sector -- and fund reconstruction of much of the rest of the troubled nation.