Federalism in Iraq Could Be a Gusher for Oil

Sen. Joe Biden (D., Del.) has been hocking his federalist solution to Iraq on the campaign trail, in the media and among his Senate colleagues. The nonbinding resolution calls for an Iraq policy that supports stronger regional governments along sectarian lines, limiting the role of a central government to defense and division of oil revenue, and abiding the constitution already in place. The plan, which the Bush administration has rejected, may be voted on as early as today.

Several factors suggest federalism may be the natural course of events in Iraq regardless of a change in policy in Washington. The most intriguing is a new oil deal between the Kurdistan Regional Government, or KRG, and Texas-based Hunt Oil. The environment for investing appears to have improved in the Kurdish northern regions, but questions remain unanswered in the south -- where most Iraqi oil reserves are.

Oil-sharing legislation is the lynchpin that all sides have been awaiting to facilitate Iraqi political reconciliation. Hussain Ibrahim Saleh al-Shahristani, Iraq's oil minister, negotiated an accord and announced it in August with much fanfare. It was briefly hailed as "positive" news in the run-up to Gen. David Petraeus' recent report to Congress regarding the state of affairs in Iraq. The Iraqi National Assembly, however, seems unlikely to pass any legislation and rarely can manage even a quorum.