Iraq’s Stability, Oil Growth Hinge on Allawi Deal, Envoy Says

May 20, 2010, 10:01 PM EDT

By Viola Gienger

May 21 (Bloomberg) -- Iraq’s envoy to the U.S. said his country’s economic expansion through a doubling of oil production hinges on forming a government acceptable to Shiites, Kurds and Ayad Allawi’s rival Sunni-backed secular bloc.

“The outline of the endgame is becoming clear,” said Ambassador Samir Sumaida’ie, who served as interior minister after the 2003 U.S. invasion that toppled dictator Saddam Hussein. “It will be very difficult for any government to survive unless they include everybody or they satisfy the four leading blocs.”

The two predominantly Shiite movements -- Prime Minister Nuri al-Maliki’s State of Law and the Iraqi National Alliance -- along with the Kurds and Allawi’s Iraqiyah bloc, will issue maximum demands to begin what probably will be “protracted” negotiations, Sumaida’ie, 64, said yesterday in an interview at Bloomberg’s Washington bureau.

Iraqi leaders are under pressure to quicken the pace of forming a new government as the U.S. eyes a deadline of Aug. 31 to withdraw about half of the 94,000 troops on the ground. The shape of the new leadership will determine how fast and how extensively Iraq, holder of the world’s third-largest oil reserves, can develop its economy, and to what degree sectarian violence can be avoided.

Troop Drawdown

U.S. officials have said they plan to proceed with the drawdown of troops, negotiated in a Status of Forces Agreement with Iraq in 2008. Sumaida’ie, who was in Iraq last month and met with both Maliki and the top U.S. commander, General Ray Odierno, said the failure to form a new government hasn’t affected that schedule.

“I found nothing to indicate that the implementation of the SOFA agreement is at risk,” he said.

Iraq is drawing closer to announcing a final official result from the March 7 elections, after legal challenges.

Al-Maliki is seeking to control more seats in the 325-seat parliament than Allawi’s bloc. Maliki’s State of Law group, which won 89 seats to former Prime Minister Allawi’s 91, is in negotiations on the terms of a partnership with the Iraqi National Alliance, led by anti-U.S. Shiite cleric Moqtada al- Sadr and cleric Ammar al-Hakim.

A stable new government also would help Iraq resist potential power grabs from Arab neighbors and Iran as the U.S. withdraws its troops.

Stable Process

“As they see the American military and possibly political influence in Iraq wane, they want to compensate by arranging for things so that their interests are served,” Sumaida’ie said. “We came to the conclusion that the best way to safeguard Iraq against interference is to build our own institutions and stabilize our political process.”

Iraq hopes to avoid getting in the middle of the U.S. confrontation over Iran’s nuclear program, Sumaida’ie said.

“Iran is not only on a collision course but is engaged in a battle with the United States on a daily basis, diplomatically and in every sense,” he said. “We continue to remind our neighbors that we do not want to be the pawns in their bigger battles.”

Iraq has its own fight to rebuild the country, the envoy said.

The nation is preparing for a third round of bidding to exploit its oil resources. Iraq plans to increase crude-oil production to 4.5 million barrels a day by 2014, according to a Cabinet decision last month. Iraq pumped 2.31 million barrels a day in April, about the same output as Kuwait, according to Bloomberg estimates.

Kurdish Oil Issue

Energy exports are hampered by inadequate facilities and by the impasse over an oil law amid disagreements between the national authorities and leaders in the northern semi-autonomous Kurdish region over how to manage the resources and the resulting revenue.

“Our export facilities now are not capable of handling the extra production,” Sumaida’ie said, adding that the country needs to begin building infrastructure in parallel with development of the oil fields.

The Iraqi government also has entered agreements with Fairfield, Connecticut-based General Electric Co. to increase electricity production and distribution, and with Chicago-based Boeing Co. to build a fleet of airliners and related facilities and provide personnel training.

“I think deliveries will start very soon on both of these contracts,” Sumaida’ie said. “We expect it will take us another two or three years to get us to a point where people will have enough electricity.”

Investment from the United Arab Emirates also is helping build thousands of homes on a former military base southeast of Baghdad, he said.

Basic services for the population such as reliable electricity, water and health care depend on security and political stability, he said.

“I’m confident we will get there,” Sumaida’ie said of the political goal. “It’s just going to be hard.”

Source: http://www.businessweek.com/news/2010-05-20/iraq-s-stability-oil-growth-hinge-on-allawi-deal-envoy-says.html