The Iraqi Cabinet approved a draft of a law on Monday that would set guidelines for nationwide distribution of oil revenues and foreign investment in the immense oil industry. The endorsement reflected a major agreement among the country's ethnic and sectarian political blocs on one of Iraq's most divisive issues.
The draft law approved by the Cabinet allows the central government to distribute oil revenues to the provinces or regions based on population, which could lessen the economic concerns of the rebellious Sunni Arabs, who fear being cut out of Iraq's vast potential oil wealth by the dominant Shiites and Kurds. Most of Iraq's crude oil reserves lie in the Shiite south and Kurdish north.
The law also grants regional oil companies or governments the power to sign contracts with foreign companies for exploration and development of fields, opening the door for investment by foreign companies in a country whose oil reserves rank among the world's three largest.
Iraqi officials say dozens of major foreign companies, including ones based in the United States, Russia and China, have expressed strong interest in developing fields or have done some work with the Iraqi industry. The national oil law would allow regions to enter into production-sharing agreements with foreign companies, which some Iraqis say could lead to foreigners reaping too much of the country's oil wealth.
Iraqi officials say all such contracts will be subjected to a fair bidding process, but American inspectors have reported that the upper echelons of the Iraqi government, including the senior ranks of the Oil Ministry, are rife with corruption. There are also fears among non-Americans that American companies could be favored.
But oil industry analysts in the United States say it is unclear if companies will rush to sign contracts because the law is vague about what legal protections investors would be given.
The oil law and several related measures must still be approved by Parliament before they are enacted. Since the American-led invasion of 2003, Iraqi politics has often been split bitterly along ethnic and sectarian lines, and that kind of conflict could stall the law's passage. Drafts were debated for months by a committee before the Cabinet finally approved one.
"At the end of the day, we all supported this thing because it's workable for all the parties," said Barham Salih, a deputy prime minister and the head of the committee.
Distributing revenue by population is not guaranteed to placate the feuding parties because no accurate census exists. There is intense disagreement over demographics in Iraq — many Sunni Arabs insist they are the majority of Iraqis, even though Sunni Arabs are generally estimated to be 20 percent of the population, Kurds 20 percent and Shiite Arabs 60 percent.
If the law is passed, its effect on Iraq's oil industry could be enormous, assuming that foreign companies would be willing to work here despite the violence. Iraq has 80 known oil fields, 65 of which will be offered for bids for development contracts, said Hussain al-Shahristani, the oil minister.