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Iraqi Kurds fed up with the bickering in Baghdad and the failure of the central government to pass a comprehensive hydrocarbons law have virtually declared their independence signing new oil contracts with western companies and legislating their own oil law in August in the Kurdistan Regional Parliament.

Iraqi Oil Minister Minister Hussain al-Shahristani, has declared the contracts that the Kurds signed null and void while the Kurds have called for his resignation…

The Kurdistan Regional Government (KRG) signed a production-sharing contract with Hunt Oil Co. of Texas, U.S., the first such deal since the Kurds passed their own oil and gas law.

Ashti Hawrami, the regional government's minister of natural resources, said in a statement that the signing by Hunt is evidence the government's new oil and gas law has created "a supportive and transparent business environment which promotes investment by international oil companies in our region for the benefit of all." Shahristani at a recent meeting of OPEC in Vienna said that all oil contracts signed in Iraq's Kurdish region are "illegal" as a controversial oil law is yet to be passed in the parliament.

Oil Minister Shahristani should quit rather than "interfere in the internal affairs" of the Kurdish region, KRG spokesman Khalid Saleh told reporters in Erbil.

In a separate statement, the KRG said the minister was "strongly advised to stay out of issues over which he has no authority."

"But once again he has repeated his false mantra of 'it is illegal'. Unfortunately this has been his way of dealing with the legitimate concerns of the hard working oil union members in the south, with the achievements of the KRG or with any other organization that he does not like." The statement said the minister must focus on preventing "illegal oil smuggling under his watch, which is crippling the Iraqi economy."

Saleh said if Shahristani failed in this he should resign and allow some other "person more qualified than him" to do his job.

The regional government also accused the minister of favoring contracts signed with companies who operated during the former regime of Saddam Hussein.

"The answer is to get on with the agreed draft oil law and present it without changes to the parliament. That way we will all get on with the task of developing the oil industry for the benefit of the people," the KRG said.

Iraq's oil infrastructure has been hit by decades of under-investment as a result of successive Gulf wars, 13 years of UN sanctions and the rampant insecurity that followed the US-led invasion in 2003.

Washington regards passage of the controversial oil legislation as key to efforts at national reconciliation in the country which is wracked by an insurgency and sectarian violence.

However, that law is facing an uncertain future. Last week there were reports that a carefully engineered compromise on the draft oil agreed in February after months of hard talks among Iraqi political groups, appears to have collapsed.

Shahristani negotiated the original deal.

Senior Iraqi negotiators met in Baghdad last Wednesday in an attempt to salvage the original compromise but the meeting came against the backdrop of the clash between the oil minister and the KRG.

Sources in Baghdad tell The New Anatolian that Shahristani, is a hard nut to crack for the Kurds as he is a senior member of the Arab Shiite coalition that controls the federal government, which negotiated the oil law compromise with leaders of the Kurdish and Arab Sunni parties.

The problem the Kurds face is that without Baghdad's consent they cannot sell the oil even if they extract it.

The oil law - which would govern how oil fields are developed and managed - is one of several benchmarks that the Bush administration has been pressing the Iraqis to meet as a sign that they are making headway toward creating an effective government.

The legislation is already at the Iraqi Parliament, which has been unable to take virtually any action on it for months. Shiite say the law could not be passed because Kurds are signing arbitrary deals with foreign oil companies while the Kurds say because the Shiite and Sunnis stalled the law they had no other option but to go their own way.

The New York Times said last week The Sunni Arabs who removed their support for the deal did so, in part, because of a contract the Kurdish government signed earlier with a company based in the United Arab Emirates, Dana Gas, to develop gas reserves.

The Kurds say their regional law is consistent with the Iraqi Constitution, which grants substantial powers to the provinces to govern their own affairs. But Shahristani believes some kind of Kurdish declaration of independence can be read into the move. "This to us indicates very serious lack of cooperation that makes many people wonder if they are really going to be working within the framework of the federal law," Shahristani said in a recent interview, before the Hunt deal was announced.

The other crucial players are the Sunnis. Some members of one of the main Sunni parties, Tawafiq, demand federal control of contracts and exclusive state ownership of the fields, bolted when it became convinced that the Kurds had no intention of following those guidelines.

Prime Minister Nouri al-Maliki has suggested returning to the original language agreed to in February and trying once again to push the law through Parliament. Iraq's Deputy Prime Minister Dr. Barham Salih says there is basic agreement on returning to that language, but conceded that Sunni participants insist on a deal that includes changes to the Iraqi Constitution to safeguard their interests in the distribution of revenues. A law on how the revenue should be shared is being developed as a critical companion to the oil law.

The central element of the compromise was agreed to in February after months of difficult negotiations among Iraq's political groups.

The main parties in those negotiations were Iraqi Kurds, who were eager to sign contracts with international oil companies to develop their northern fields; Arab Shiites, whose population is concentrated around the country's southern fields; and Arab Sunnis, who have no meaningful oil resources in their areas.

Those facts meant that the compromise law had to satisfy both the Sunni insistence that the central government maintain strong control over the fields as well as the push by the Kurds and Shiites to give provincial governments substantial authority to write contracts and carry out their own development plans.

Many of the debates centered on a federal committee that would be established to review the contracts signed with oil companies to carry out the development and exploitation of the fields. The Kurds objected to any requirement that the committee would have to approve contracts. So in a nuanced bit of language, the negotiators gave the committee the power only to reject contracts that did not meet precisely specified criteria.

But problems immediately surfaces after the cabinet approved the draft law and it went to a council that was supposed to adapt the language to be sure it complied with Iraqi legal conventions.

When the draft emerged from that council, the members of some parties, particularly the Kurdish ones, thought that the careful balance struck in the draft had been upset, and they accused Shahristani of meddling. Then the law stalled in Parliament and Iraqi Foreign Minister Hoshyar Zebari told The New York Times that Kurds decided to send a signal that they would not wait indefinitely and signed the contract with Dana Gas.