MIDDLE EAST: Iraq's '08 fate

Iraq's crude capital, Basra, and perhaps its most controversial city, Kirkuk, also flush with oil, face a formidable 2008.

The futures of both depend on how the post-2003 power vacuum plays out, though the latter could be settled with a political compromise in Baghdad. In Basra, after nearly five years of a U.S. occupation that focused on sectarian divisions, intra-Shiite politics have taken hold.

"It is about the struggle for control of the most important governorate in Iraq, in terms of the oil economy," said Reidar Visser, editor of the Iraq Web site historiae.org and an Iraq expert at the Norwegian Institute of International Affairs. "This struggle is by no means decided yet. It's not over by any sense."

Last year ended on what seemed to be a high note. A week before the British handed over the security file to Iraqi officials, the leading political and religious parties signed an agreement on the division of power and rights in a relatively sovereign Basra.

"This sort of agreement … either there is no substance or some very important concessions must have been made," Visser said. "The struggle is still there and the parties are still there. We have no convincing sign that there's any dramatic change in this basic struggle. It's just that the surface looks calmer right now."

Nearly 80 percent of Iraq's 115 barrels of proven oil reserves -- the world's third largest -- are located in or around Basra, where the struggle is largely between three political parties -- and their militias: the Islamic Supreme Council of Iraq, which is a major partner in the governing coalition in Baghdad; the Fadhila Party, which has withdrawn its smaller presence from the coalition but dominates Basra's government; and the Sadr Movement, which isn't largely represented on the Basra Council but maintains a presence in the province itself.

All three had a busy 2007 in political and gun battles in and outside Basra.

Sadr and ISCI waged an often bloody pitch for control over the eight other provinces south of Baghdad, where the winner would control not only the non-Basra oil but Karbala and Najaf, holy cities in Shiite Islam.

Fadhila and Sadr militias gunned it out in the streets of Basra but ended the year on a more conciliatory note.

And ISCI organized a Basra provincial council removal of the Fadhila Party governor of the province. The governor has not relinquished power, and the consequences of the power struggle have likely not unfolded.

"The situation in Basra is an extension of what you see in the other governorates south of Baghdad where everywhere there are struggles between the Supreme Council and a sort of Sadrist-led opposition," Visser said. "But the stakes are so much higher in Basra. That makes the big difference. That makes it into a unique case."

Iraq produced an average of little more than 2 million barrels per day last year, and except for an uptick in northern production and exports from Kirkuk in the past few months, most came from Basra. The northern pipeline to Turkey has been largely out of commission since 2003. Nearly all of Iraq's exports of about 1.7 million bpd were sent to market from Basra's ports.

"That Basra's oil industry is working is what keeps the Iraqi government in business, to the extent that it is in business," said Juan Cole, Middle East expert at the University of Michigan and editor of the Web site Informed Comment. "Were it to be interrupted in the way that the Kirkuk fields production or Kirkuk exports have been interrupted, frequently over the past four years, I think really would have spelled the end of the Iraqi government. So the good news is that they got it working and it is bringing in income."

Working is relative, as is much in Iraq. There is little oversight on the oil, such as metering, and a black market in oil and fuels is booming, "which is going into the hands of parties and their militias," Cole said.

He said the agreement the Basra parties reached last month could be more like "the kind of peace pact that the five mafia families in New York would make, which is to sort of recognize each other's turf."

"The danger is that it could easily break down," Cole added, noting Iraq's military was sent down last year to tamp the upheaval and was immediately sidelined. "Then what could anybody do about it?"

In April, provinces will be allowed to form regions of their own, like the three provinces that make up the Kurdistan Regional Government. It's a date certain to try the tenuous treaty.

"Basra could muddle along or it could easily descend into a spiral of violence that in turn could disrupt the oil production and export in significant ways," Cole said, "which in turn could have a very deleterious effect on the Baghdad government."

In 2008, when Baghdad isn't looking south, most eyes will be north, where an 11th-hour agreement was reached last month over the fate of Kirkuk. It's a historically Kurdish city, with a sizeable Turkomen population, and was loaded with Sunni Arabs after Saddam Hussein forced Kurds and others out.

Kirkuk's oil reserves are estimated at between 11 billion and 15 billion barrels. The Kurds want it back. The 2005 constitution called for a referendum on the future of Kirkuk and other disputed territories by Dec. 31, 2007, but the political leadership in Baghdad and Irbil, the Iraqi Kurdistan capital, agreed to a delay.

"There's a window of opportunity now for six months," said Joost Hiltermann, the deputy director of International Crisis Group's Middle East program. He said the United Nations' Iraq office will focus on Kirkuk, as will the United States, to head off any breakdown in Iraq's government -- the Kurds are a needed coalition partner -- or an increase in violence.

Parliament held a tense session over the issue Thursday, the Voices of Iraq news agency reports.

The Kurdistan Regional Government has taken a hard line with Baghdad on this issue as well as other disputes over control and direction of Iraq's oil sector. Baghdad says the KRG's regional oil law and unilateral oil deals with foreign oil firms are illegal. But the Kurds maintain their semiautonomy gives them the right to develop an extremely potential but as yet undiscovered crude bonanza in their northern territories without central control.

In Kirkuk, as in Basra, power over crude equals power absolute, and the first six months of 2008 could largely determine Iraq's fate.

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