U.S. officials criticize Hunt Oil's Iraq deal

BAGHDAD — A controversial deal by the Hunt Oil Co. with an Iraqi regional government faces "significant legal uncertainty" and undermines American efforts to strengthen Iraq's national unity, a U.S. Embassy spokesman said Thursday.

The official, who insisted on anonymity, warned that Dallas-based Hunt and a handful of small "wildcat" companies that have signed similar deals could find themselves caught in a legal battle between the Iraqi federal government and the northern, semi-independent Kurdistan region.

"We think that these contracts have needlessly elevated tensions between the KRG (Kurdistan Regional Government) and the government of Iraq, who both share a common interest in the passage of national legislation," the official said, adding that the United States is "pushing all sides to negotiate in good faith and knock off the things that undermine national unity."

The deals are for areas where oil hasn't been found yet, not Iraq's massive existing oil fields, which would remain under the control of the national oil company. Kurdistan and Hunt officials have declined to reveal the terms. Typically in such a deal, Hunt would get a share of the revenues after it discovers, develops and begins pumping oil.

Other U.S and foreign companies have asked the State Department for advice about whether to negotiate deals with Kurdistan, home to the world's sixth-largest reserves, and have decided against doing so after they were told there might be legal problems, the embassy official said.

The Iraqi oil minister has called the Hunt deal illegal, but the leaders of the Kurdistan Regional Government say it's in the country's best interest to boost oil production because a proposed national law seems to be going nowhere in parliament.

The law, which would divide oil and natural-gas revenues among Iraq's Shiite and Sunni Muslims and Kurds and would regulate how the country's oil fields are developed and run, has been stalled for months. Most of Iraq's oil is in the southern Shiite and northern Kurdish regions; the Sunnis, who ruled Iraq under Saddam Hussein and tyrannized the Shiites and Kurds, have virtually no oil.

The contracts with the companies were done according to an oil and gas law approved by the Kurdistan parliament and were allowed under the Iraqi constitution, Jamal Abdullah, an official spokesman for the Kurdistan Regional Government, said in an interview Thursday.

"The companies we have contracts with are well-known companies," he said. "We have consulted with experts on oil law and we haven't done anything illegal or against the constitution."

"We look for oil, we encourage drilling for it and production, but we never market or sell it without the supervision of the central government," Abdullah said. "We agree that the oil in Kurdistan is for all Iraqis, not for the Kurds only."

Iraqi Kurdish leaders were ready to move forward on the national oil and gas law, he said. "We are ready to agree with the center on selling and producing oil," he said

Kurdish leaders said they weren't planning to take any more oil revenue than they'd be entitled to under a national agreement. With parliament dithering, not signing deals such as the one with Hunt would mean lost revenue for the whole country, said the regional government's minister for housing and reconstruction, Imad Ahmad Sayfour.

"The oil and gas law hasn't been approved, and it will take a long time," Sayfour said in an interview with McClatchy last week. "We can't just cuff our hands and wait for the Iraqi parliament."

Security issues have hampered the production and transport of oil elsewhere in the country, he said, and increasing exports from the north would benefit everyone. "We're doing this for the whole country," he said.

Passing the oil law was one of the 18 congressionally mandated benchmarks for Iraq, but Army Gen. David Petraeus and U.S. Ambassador Ryan Crocker told Congress earlier this month that progress on it has been unsatisfactory.

A draft version of the law would permit deals such as Hunt's, but their terms would be public. Iraq would get 75 to 80 percent of the revenue from such deals, the embassy official said. Iraq's economy is heavily dependent on oil and natural-gas revenue, which finances 95 percent of the government's budget.

Hunt's deal also has come under fire in Washington, where Rep. Dennis Kucinich, an Ohio Democrat and presidential candidate, has called for an investigation and highlighted the ties between the Bush administration and company Chairman Ray L. Hunt. Hunt is a director of Halliburton, where Vice President Dick Cheney once served as president, was a key fundraiser for President Bush and serves on the President's Foreign Intelligence Advisory Board.

(Price writes for The News & Observer in Raleigh, N.C. McClatchy Newspapers special correspondent Yaseen Taha contributed to this story.)