Kurds edge closer to backing crucial Iraq oil law

BAGHDAD, Feb 25 (Reuters) An oil law crucial to resolving political divisions in Iraq edged closer to approval as Kurds said some key issues were resolved and the cabinet prepared to discuss a draft, officials said today.

Passing an oil law to help settle potentially explosive disputes among Iraq's ethnic and sectarian communities over the division of oil reserves has been a key demand of the United States in providing further military support to the government.

Iraq needs billions of dollars in foreign investment to revive its shattered economy. Officials are in last ditch talks to finalise a draft law that sets rules for sharing the wealth from the world's third largest oil reserves.

Agreement was nearly reached last month, but leaders in the largely autonomous Kurdish region in northern Iraq demurred, saying they still had concerns about relations between regions and Baghdad.

A top aide to Kurdish regional president Masoud Barzani said today letters had been exchanged between the two sides in recent weeks to settle some of the articles in question.

''Some of the issues in debate between the Kurdish regional government and the federal government in Baghdad were solved recently,'' Fauad Hussain, head of the presidency board in Kurdistan, told Reuters today.

''The Kurdish regional government approved the submission of the oil draft law to parliament...'' Hussain said. But he also cautioned: ''The whole issue is still under discussions and it's only a draft law.'' STILL UNDER DISCUSSION ''The Kurds agreed on the key points which clarify the annexes of the oil law and the issue of the way that regions can manage oil resources all over the country, including the Kurdish region,'' he said.

Barzani met Iraqi President Jalal Talabani, who is also a Kurd, and US Ambassador Zalmay Khalilzad yesterday.

''We agreed on the draft of the law but still there are some articles under debate with the central government,'' Barzani said at a joint news conference.

Talabani said the key issue discussed at their meeting was the oil law and that they had come ''close to final approval''.

A government source with close knowledge of the oil law debate, who spoke on condition of anonymity because he was not authorised to speak to the media, said no final agreement was reached on the draft when the cabinet last met on February 22.

''Discussions in the cabinet on the oil draft haven't reached a compromise and the key conflicting issue of the regions having authority to approve deals with foreign companies is still in debate,'' the source said.

The source said the cabinet would meet on Wednesday for further discussions on the law. Once it is approved by the cabinet, the law will go to parliament for legislation.

The Iraqi oil ministry had no comment on whether the Kurds had approved the draft oil law.

The Kurdish government has had reservations on the wording regarding the powers of a federal council, to be established under the law, which will set the oil policy and lay down ground rules for contracts signed with foreign firms.

Officials from Kurdistan, where relative security has encouraged more development than elsewhere in Iraq, have said they want assurances the federal council will not invalidate their existing contracts, including with Norway's DNO.

REUTERS SP VC1832