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The Politics Behind Iraq's Kurdish Oil

From CNBC.com features writer Ken Stier ...

A Congressional oversight committee wants to know why the heck the Bush Administration is apparently promoting US oil investment in the Kurdish region of Iraq?

That’s a fair question especially since it contradicts US policy and risks sabotaging the project of leaving behind a unified Iraq - for which the US has spilt so much blood and treasure. There's an added political wrinkle. The firm behind the Kurdish investment, Hunt Oil, is a Texas company with ties to President Bush.

Administration officials claim they have been caught off guard by Hunt's move. The committee's Democratic leadership says it has documents showing otherwise.

The argument has ramifications beyond the usual political finger-pointing. How to share revenues from oil-rich northern Kurdish area with the central government is one of the country’s most explosive issues.

It’s a fissure so fraught that the parliament has been haggling over a draft oil bill for more than a year already; passage of the bill is a key Administration benchmark of Iraqi progress.

Actively encouraging investment before this issue is settled is inflammatory.

Indeed, news of foreign oil deals signed by the regional Kurdish authorities with foreign firms has infuriated Baghdad officials. Iraqi Oil Minister Hussein al-Shahrastani denounced them as “illegal.”

However much solidarity the US wants to show with the Kurds (and surely they deserve the real deal, not Kissinger’s false embrace) encouraging oil investment before there is a national consensus on sharing revenues is risky – maybe even reckless.

It could make sense if you’ve have concluded that Iraq will eventually break up into three separate entities (Sunni, Shiite, and Kurdish), as diplomat Peter Galbraith has argued we should accept sooner than later and work to facilitate.

But that’s not US policy. The danger is that pressing ahead with oil production now could help trigger Iraq’s implosion, which may not be necessary. Breaking up would surely be risky and bloody – perhaps mostly because of Turkey.

How this plays out depends on how adroitly Kurds play this. From their point of view they have every reason to press ahead developing their oil resources –- whether or not the end-game plan is full independence.

With some 22 reported petroleum contracts already, some observers suggest the Kurds want to create a fait accompli that the central government will not be able to overturn.

It’s encouraging that not all the deals are going to Americans. A publicly traded Canadian firm, Heritage Oil Corp., has signed, as has Perenco, S.A. a private French firm, and Norway’s DNO has a stake as well.

But Americans may prove the biggest players; a firm linked to the family of Ross Perot has signed for three concession areas, according to one CNBC source.

Companies already drilling have reported impressive flow rates, encouraging others to join in (bonus signings alone have reportedly netted close to $1 billion).

The Kurds have generations’ worth of grievances against their Sunni compatriots (whose region is almost oil-less) but their future may depend in good part on just how magnanimously they are willing to share their natural bounty.

They have made an impressive gesture in that direction; a regional oil law, adopted last August, promises Baghdad a 83 percent share.

“If we intended to ‘go it alone,’ why would we ever consider passing a law which requires us to give 83 percent of the revenues to the rest of Iraq?,” asked the Kurdish Prime Minister Nechirvan Barzani.

But little is as it seems in this part of the world.

As for Hunt Oil, which seems to have been encouraged to do the Kurdish deal by various State and Commerce officials, this latest venture is another chapter for a company that likes to say it “spans much of the oil industry's colorful history.”

Hunt Oil’s CEO and chairman, Ray L. Hunt has long been major supporter of the Texas Republican Party that has served as a power base for the Bush family. He is a member of the President's Intelligence Advisory Board and is a contributor to President Bush’s presidential library project at Southern Methodist University in Dallas.

Questions? Comments? energysource@cnbc.com