updated 2/26/2007 4:02:42 PM ET 2007-02-26T21:02:42

The Iraqi Cabinet approved draft legislation Monday to manage the country’s vast oil industry and divide its wealth among the population, a key U.S. benchmark for progress in this country. The legislation now goes to parliament for approval.

Prime Minister Nouri al-Maliki announced the decision after the Kurds accepted the draft oil bill over the weekend — nearly two months after the government’s own deadline for enacting a new oil law.

Al-Maliki said the measures would be “another foundation stone” in building a new Iraq, which relies on oil revenues for about 90 percent of its national budget.

It was unclear when 275-member parliament will vote on the measure. The legislature reconvenes early next month.

All major parties have agreed to work for approval of the measure by May, but there are no guarantees in Iraq’s fractious, sectarian political system.

“The draft law represents a major breakthrough for Iraq’s economic and political transition,” said Deputy Prime Minister Brahma Sale, a Kurd. “I very much hope the main political groups will rise to the occasion” and approve the bill in parliament.

Iraq has some of the world’s largest petroleum reserves, and supporters hope the legislation will encourage major oil companies to invest billions — if the security situation improves.

Population-weighted distribution
Under the measure, revenues will be distributed to all 18 provinces based on population size — a concession to the Sunnis whose central and western homeland has relatively few proven reserves. Most of Iraq’s oil is in the Kurdish north and Shiite south, and many Sunnis fear they would be cut out of a fair share.

However, the bill had been bogged down for months in infighting between al-Maliki’s Shiite-led government and the self-ruled Kurdish administration of northern Iraq over who had the final say in negotiating contracts and managing the revenues.

In Washington, White House spokesman Tony Snow called a new oil law the “key linchpin” in Iraq’s recovery because it gives “everybody a shared economic interest in working together.”

The haggling went to the heart of the Iraqi crisis — the failure of religious and ethnic parties to compromise in the interest of saving the nation. Without such compromises, U.S. commanders doubt that military crackdowns and the current U.S. and Iraqi security operation can produce long-term stability.

Pressure from White House
The Bush administration, facing growing pressure to end the Iraq conflict, has been urging the Iraqis to finish the new oil law — one of the benchmarks that al-Maliki’s government had pledged to meet by the end of last year.

“That being done, then the Iraqis can turn to other things, such as constitutional reform, election reform” and allowing many Sunnis to return to public life, Snow said.

The Iraqis also missed a year-end deadline to establish provincial elections, reverse regulations that exclude many Sunnis from government posts, and grant limited political amnesty to some insurgents.

Under the oil legislation, regional administrations will be empowered to negotiate contracts with international oil companies. The contracts will be reviewed by a central government committee in Baghdad headed by the prime minister.

A new law is needed, most outside experts believe, to encourage international companies to pour billions into Iraq to repair pipelines, upgrade wells, develop new fields and begin to exploit the country’s vast petroleum reserves, estimated at about 115 billion barrels.

According to Iraqis familiar with the deliberations, the draft law would offer international oil companies several methods to invest, including production-sharing agreements. Those would give U.S. and other international companies a substantial share of the oil revenues to recover their initial investments and then allow them big tax breaks.

That angers some Iraqis, who believe foreigners will get too much control of the nation’s wealth.

Some fear power shift from center
Some critics of the law believe the draft gives the regions too much control. The Kurds currently have the only self-governing region in Iraq, although the 2005 constitution allows other areas to form them too, such as the Shiites in the oil-rich south.

If implemented, “The balance of power in the management of Iraq’s oil and gas resources would have shifted alarmingly from the center to the regions,” former oil official Tariq Shafiq, who helped draft an early version, told an oil seminar in Amman, Jordan, this month.

The tortuous negotiations are reminiscent of the intense American arm-twisting, public pressure and backroom dealmaking that have pushed nearly every step in Iraq’s political transformation since the U.S.-led invasion nearly four years ago.

The process sometimes has produced agreements that enabled Washington to declare success but ultimately created a new set of problems — such as a divisive 2005 election that invigorated the Sunni insurgency, and a new constitution that the U.S. now acknowledges must be amended substantially to bring peace.

Some critics fear the oil law will become the latest example.

“The draft law is very dangerous,” former oil official Faleh al-Khayat told the Amman seminar. “It should not be implemented at this time.”

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