FACTBOX-Key political risks to watch in Iraq

[retirementafterrv]

June 1, 2010

FACTBOX-Key political risks to watch in Iraq

BAGHDAD, June 1 (Reuters) - Political tensions in Iraq are running high with no new government in sight nearly three months after a March 7 parliamentary election.

While progress has been made toward seating a new parliament, the long delay could pour fuel on volatile sectarian differences in Iraq as two large Shi'ite electoral blocs negotiate the terms of a union, which could push a Sunni-backed coalition that narrowly won the election to the sidelines.

More delays could thwart U.S. plans to end combat operations in August, although to this point Washington has given no indication it intends to alter its troop drawdown schedule.

Iraq, which has the world's third largest oil reserves, has signed contracts with energy majors such as Royal Dutch Shell and Lukoil that could more than quadruple oil output over the next few years, but it needs to broaden investment to create jobs and battle a still stubborn insurgency.

Investors, understandably, are wary. Iraq remains largely isolated from world financial markets. Only a short while ago, local banks were so cut off the only way to transfer money across borders was in cash-stuffed bags.

Today, Iraq has little credit. Only a few dozen companies are listed on the local stock market. The Iraqi dinar is lightly traded. One place to take a punt from afar on Iraq's future is its Eurobond .

Below are some of the major risks facing Iraq seven years after U.S. troops toppled Saddam Hussein.

POLITICAL SQUABBLING, POWER VACUUM

Because no single bloc won a majority in Iraq's 325-member parliament, coalition talks are key to forming a government.

The Iraqiya bloc led by former Prime Minister Iyad Allawi, a secular Shi'ite with wide support among the Sunni minority, took 91 seats in the election, two more than Prime Minister Nuri al-Maliki's State of Law bloc, according to preliminary results.

The Iraqi National Alliance, a Shi'ite bloc which includes anti-American cleric Moqtada al-Sadr, took 70 seats, while a Kurdish alliance picked up 43.

Sadr's faction, which wants U.S. troops to leave faster and questions the oil deals, is well-placed to join a government.

Maliki, a Shi'ite who built his reputation on his claim to have rescued Iraq from civil war, formally challenged the election results and a special review panel ordered a recount of 2.5 million votes in the capital.

The recount was finished in May and found no indication of fraud or manipulation. While it produced some minor changes, the seat distribution among the blocs was unchanged.

Challenges against candidates accused of having links to Saddam Hussein's outlawed Baath party, most from Iraqiya, have also been sorted out, with no change to the seat totals.

The Supreme Court finally certified the results -- a key step before a new parliament can be seated -- on Tuesday (June 1), nearly three months after the vote.

Long delays in forming a government could undermine security and create a dangerous power vacuum, while marginalising Iraqiya could anger Sunnis, just as U.S. troops prepare to leave. U.S. President Barack Obama, focused on a growing conflict in Afghanistan, plans to cut U.S. troop numbers in Iraq to 50,000 by August ahead of a full pullout by the end of 2011.

What to watch:

-- Sectarian or political violence flares, as it did during the five months it took to form a government after 2005 parliamentary polls. While this may not derail oil investment, it could scare away potential investors in other sectors.

-- Parliament, which cannot function without a government, fails to pass investment legislation already delayed by years of political squabbling, sending a poor signal to firms interested in Iraq but worried about legal risks and an opaque bureaucracy.

A RETURN TO MAJOR VIOLENCE

Iraq is far less violent than when sectarian killings peaked in 2006-07. Maliki takes credit for security gains, but a U.S. troop rise and Sunni militia cooperation also played a big part.

Since March, Iraqi forces backed by U.S. troops have scored major victories against local al Qaeda groups, including the killings on April 18 of al Qaeda's leader in Iraq, Abu Ayyub al-Masri, and Abu Omar al-Baghdadi, the purported head of its affiliate, the Islamic State of Iraq. Yet Sunni Islamist insurgents, who the government says are in cahoots with Saddam's Baath party, can still stage big attacks on government ministries and public buildings.

A spree of bombings and attacks by gunmen that stretched from Mosul in the north to Basra in the south killed more than 120 people on May 10 and was seen as a warning that insurgents are still a potent force despite battlefield setbacks.

Political feuds, Sunni discontent or an attack on a holy site or a clerical leader could all spark renewed violence, as could any Israeli strike on Iran's nuclear facilities. Such an attack might prompt mostly dormant Shi'ite militias to retaliate against U.S. forces in Iraq.

Any major violence will push up prices on global oil markets , especially if it appears set to persist.

What to watch:

-- Attacks on oil facilities or staff. Iraq's efforts to secure investment could be derailed by attacks on foreigners.

-- Signs that U.S. forces are changing withdrawal plans.

-- Iraqi security forces are vulnerable to infiltration and some key ministries are still politicised. Iraq's military still relies on U.S. troops for air support, logistics and forensic investigation.

KURD-ARAB CONFLICT

Tensions between Arabs and minority Kurds, who have enjoyed virtual autonomy in their northern enclave for almost 20 years, are festering. Kurds suffered massacres in Saddam's era, but have gained unprecedented influence since 2003 and hope to reclaim areas they deem historically Kurdish.

Others in disputed areas complain Kurds have exploited their newfound prominence at the expense of Arabs and Turkmen. At the centre of the impasse is Kirkuk, the northern province that sits on an estimated 4 percent of world oil reserves.

What to watch:

-- Confrontation between the Iraqi army and Kurdish Peshmerga forces.

-- Any breakthrough on oil. Iraqi Kurdistan, which estimates its oil reserves at 45 billion barrels, has signed deals with foreign firms that the Iraqi Oil Ministry labels illegal.

-- Any resumed exports from Kurdish fields, halted because of that dispute, would be positive. Iraq's cabinet approved on May 18 a deal that would allow exports to start, but to date the flow has not begun.

-- Passage of modern oil legislation, held up for years because of the Kurd-Arab feud.

The delay has not deterred oil majors from signing deals, but potential investors in other sectors view the legislation as an indicator of Iraq's stability and friendliness to business.

A NEW AUTHORITARIANISM

Iraq's democratic experiment is important in a region where leaders often leave office only in a "coffin or coup".

The attempt to overturn Iraqiya's lead after the vote suggest that a democratic culture is still only skin deep.

Many Iraqis believe their country needs a strong ruler. Western powers would be unlikely to stand by if a military coup installed a leader hostile to their interests.

What to watch:

-- Any clearly illegal attempt to change the election result. So far all the steps have followed what on the surface appear to be legal procedures.

http://articlesofinterest-kelley.blogspot.com/search/label/iraq%20politics

-- Any constitutional changes that would allow leaders to amass power or remain in office

[quadraph0nic]

well, that read was...sobering

Retirement, thanks for the post!

[Doc31]

Great article!

Thanks for the post