Iraq's government is drafting a new hydrocarbons law that will chart the course for the country's oil sector and determine how its revenues will be apportioned. The law would put much of Iraqi oil into the hands of foreign companies, allowing "production sharing agreements" (PSAs) between the Iraqi state and the multinationals. OPEC estimates Iraq has some 115 billion barrels of reserves, and only a small fraction of its oil fields are in use. Writes Joshua Gallu for Der Spiegel: "By signing oil deals with Iraq, oil companies could account for those reserves in their books without setting foot in the country—that alone is enough to boost the company's stock. And, by negotiating deals while Iraq is unstable, companies could lock in a risk premium that may be much lower five or ten years from now."

The draft law also has implications for the future shape of the Iraqi federation. The Kurdish Regional Government (KRG) has already signed agreements of its own with oil companies. But Baghdad has declared the contracts invalid, and the new draft law states that oil exploration, production and transport would be handled by the central government in Baghdad. (Der Spiegel, Dec. 22)

The US Army Corps of Engineers is currently at work on several projects to boost oil production in Iraq, including a major refurbishment of the Al Basrah Oil Terminal (ABOT), formerly known as Mina Al-Baker. Once the major exit point for Iraq's oil but now in decrepitude, ABOT is considered the "gateway to Iraq." (AME Info, Dec. 20)

But chaos continues to bottleneck a recovery of the industry. The Oil Ministry admits it lost $11 billion and 651 days of oil exports because of attacks on its northern oil pipeline. The ministry said those numbers are just from 2004 through the first half of 2006. (UPI, Dec. 21)

Much of what is produced is lost to corruption and banditry. Professor Kalev Sepp of the Naval Post Graduate School in Monterey, an advisor to the Iraq Study Group, says "it's fair to say certainly not less than a quarter is stolen or lost, maybe as much as half." Sepp says military commanders report that trucks are hijacked or syphoned at road blocks. The oil is sold on the black market, to fund militia groups criminal gangs. "It goes to the kingpins." (KGO, San Francisco, Dec. 21)

Somehow, there are some respected voices that still dismiss the notion of a war for oil.

See our last posts on Iraq and the struggle for Iraq's oil.