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Economic Agreement Is a Buy Sign in Iraq

Thursday, March 1, 2007

With most of American politics focused on the troop surge and partisan maneuverings over its implementation, another story has gotten lost: The Iraqis themselves have made important progress in a basic economic issue that has fueled the sectarian divide.

The only real industry in Iraq comes from its only real natural resource: oil. Unfortunately, the reserves of oil are not shared equally among the population groups. Most of the oil is located outside the “Sunni triangle” and the Sunnis have fought the Shi’ites (and the Kurds to a lesser extent) in order to keep them from federalizing Iraq and hoarding all of the oil revenue from their respective areas of the nation. Many Sunnis have been unwilling to accept a democratically-elected government that naturally favors Shi’ites, or the federalism that favors the Kurds.

Oil (300)The solution requires the other two other groups to share their revenue in such a way that the Sunnis can feel secure about their ability to survive and to thrive in the new Iraq.

Over the past three years, the politicians were unable to settle on an equitable and secure revenue-sharing plan that still allowed the Kurds and the Shi’ites to manage their own resources. But now things have changed. The Kurds, who had held out the longest, agreed to share their oil revenues on a basis that had already won support from the Shi’ites and the Sunnis. Two days later, the Iraqi cabinet approved the deal, and the Iraqi Parliament will likely vote it into law.

Does this address the fundamental differences that have produced dissent and Sunni insecurity in the past? It appears to. It takes the collection of oil revenues out of the hands of regional governments and invests it into the central government. The Sunnis may not control the central government any longer, but they have more representation in Baghdad than in Basra or Kirkuk. They also won central government oversight over oil contracts, ensuring that oil revenues could not be hidden or controlled by the regions. This turned out to be one of the major stumbling blocks, with the Kurds insistent that Baghdad not be allowed to force contracts on the regions or require approval from national bureaucrats. Instead, the parties agreed to give the national government the power to “prevent” contracts from being executed, a bit of wordsmithing that allowed the Kurds to acquiesce.

Does this address the fundamental differences that have produced dissent and Sunni insecurity in the past? It appears to.

This agreement got a boost earlier this month when geologists and seismologists reported oil and natural gas reserves in Anbar, a Sunni stronghold. The reserves in Anbar so far do not appear to be anywhere near as large as those in the Kurdish or Shi’ite regions. However, their existence gives the Sunnis incentives to stabilize Anbar and start building infrastructure to exploit their holdings. If they can reduce the violence, more surveys could be conducted that might find even more reserves, giving them even more opportunity to flourish.

This development sends two strong signals, both of which bode well for the long term. First, the Sunnis will now have an investment in the success of the central government. Revenue sharing will only occur if the government remains in place; if Iraq falls apart, the Sunnis will see no revenue from either area. Second and just as important, the process of reaching this agreement demonstrates that Iraq can teach itself democracy and internal diplomacy. If the three factions can reach lasting agreement on oil, it will generate momentum for the resolution of less-tractable disputes.

If this plan gets passed and implemented quickly, it has the potential to take the wind out of the Sunni insurgencies, especially if the U.S./Iraqi "surge" also succeeds in dialing down the violence in Baghdad. It could add to the breathing room needed for the Iraqi government to take control over the capital and the Sunni areas of its nation. Let's hope the Iraqi National Assembly senses the urgency and immediately moves this proposal into law.

Image credit: "oil" by Flickr user octal

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