Federalism in Iraq Could Be a Gusher for Oil

Recent events in Kurdistan further undermine the national accord. The KRG passed its own version of the oil bill earlier this year showing symbolic independence. The KRG predicated its agreement with Hunt Oil on the new law and has expressed its displeasure with the gridlock in Baghdad. Ashti Hawrami, KRG's minister of natural resources, said in a statement that the deal demonstrates "a supportive and transparent business environment which promotes investment by international oil companies in our region for the benefit of all."

One of a Kind

The Hunt deal is the first of its kind. According to both parties, it was negotiated in secret without the knowledge of Iraqi or the U.S. government. The deal involves drilling in only a portion of the Jabal Kand area of the Dihok region. Although it is a relatively small deal, analysts at Energy Intelligence -- a private publisher of energy reports such as the Energy Compass -- expect other independents to follow suit. Rumors surround Pioneer Natural Resources(PXD Quote), which denies interest in a deal. Al-Shahristani, however, has stated unequivocally that the Hunt contract is null and void because it lacks the central government's approval.

The Bush administration has vocally supported the central government and Prime Minister Nuri al-Maliki. But the White House and State Department have made no public comment on the Hunt oil deal or its political implications. The State Department has an official policy to discourage such agreements. For example, Marathon Oil's (MRO Quote) deal to acquire Western Oil Sands (WTOIF Quote) remains contingent on the spinoff of Western's Kurdish division in order to conform with the State Department's policy.