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Summary

Development in Iraq's oil and natural gas sector is proceeding, in spite of continuing delays in agreeing to hydrocarbon sector and revenue sharing legislation to define new terms for the management of the country's significant oil and natural gas resources. Both the Bush Administration and the 110th Congress considered the passage of oil and gas sector framework and revenue sharing legislation as important benchmarks that would indicate the Iraqi governments commitment to promoting political reconciliation and providing a solid foundation for long term economic development in Iraq. In the absence of new legislation, interim revenue sharing mechanisms have been implemented, while both the Iraqi national government and the Kurdistan Regional Government have signed oil and natural gas development contracts with foreign firms. The central importance of oil and gas revenue for the Iraqi economy is widely recognized by Iraqis, and most groups accept the need to create new legal and policy guidelines for the development of the countrys oil and natural gas resources. However, Iraqs Council of Representatives (parliament) has not taken action to consider proposed legislation to date because of ongoing political disputes. Iraqi critics and supporters of various proposed solutions differ strongly on a number of key issues, including the proper role and powers of federal and regional authorities in regulating oil and gas development; the terms and extent of potential foreign participation in the oil and gas sectors; and proposed formulas and mechanisms for equitably sharing oil and gas revenue. Concurrent, related discussions about the administrative status of the city of Kirkuk and proposed amendments to articles of Iraqs constitution that outline federal and regional oil and gas rights also are highly contentious. The military strategy employed by U.S. forces in Iraq has sought to create a secure environment in which Iraqis can resolve core political differences as a means of ensuring national stability and security. However, it remains to be seen whether proposed oil and gas legislation and ongoing interim efforts to development Iraqs energy resources will promote reconciliation or contribute to deeper political tension. U.S. policymakers and Members of Congress thus face difficult choices with regard to engaging Iraqis on various policy proposals, related constitutional reforms, and oil and natural gas development contracts, while encouraging Iraqi counterparts to ensure that the content of proposed laws, amendments, and contracts reflect acceptable political compromises. This report reviews policy proposals and interim contracts, analyzes the positions of various Iraqi political actors, and discusses potential implications for U.S. foreign policy goals in Iraq. See also CRS Report RL31339, Iraq: Post-Saddam Governance and Security, by Kenneth Katzman.

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