IRAQ - Iraqi Oil Being Partitioned.

With foreign oil firms having won production sharing agreements (PSAs) in northern Iraq from the local Kurdish governments, pro-Sadr Shiite leaders in the southern provinces of Basra, Zi Qar (Nassiriyah) and Misan (on the Iranian border north of Basra) announced on Aug. 10 that - unless the

US-led assault on Najaf stopped - they will form a state of their own and secede from today's Iraq. Then foreign oil companies awaiting PSAs in Kurdistan (northern Iraq) said they might soon bid for similar deals in the southern oil producing zone, which includes many fields that need development.

Whether or not the US will allow Iraq to be partitioned in this way remains to be seen. But from the outcome of the fighting in Najaf so far, it had become clear by Aug. 15 that the US had lost control of Falluja, Ramadi and Mosul - key cities in the Sunni Triangle. Now the US is thinking Baghdad and the Shiite south are winnable.

Until recently, the Financial Times noted on Aug. 14, just about the only visitors to the Taqtaq depression in Kurdistan were monogamous men heading to the local spring, whose waters were reputed to have the power to grant second wives. "Now oilmen in four-wheel-drive vehicles are racing over its stony grazing grounds, conducting seismic surveys". A Turkish company, General Energy, has brought in 70 workers, including 10 Turks, to drill wells, striking oil in all three. "The potential of the field looks good", the FT quoted the company's chairman, Mehmet Sepil, as saying. Sepil obtained drilling rights in the 350 sq km concession in a PSA with the Kurdish regional government based in Suleimaniya three months before the war. He was quoted as adding: "I think in northern Iraq there are very good fields, but there is not yet enough production".

The FT said the prospect was exciting the Kurds, "hopeful at last of acquiring their own source of oil wealth and reducing their dependence on Baghdad". In addition to the Tactac field, 20 miles north-east of Kirkuk, Suleimaniya has signed a similar PSA with a second Turkish company, Petoil, to drill at Chya Surkh, on the Iranian border, and entered into talks with an Australian firm surveying gas fields in Chanchamal.

These contracts have sparked a dispute with Baghdad, however, which claims the right to sign oil deals. Baghdad's Oil Ministry says the contracts signed with the Kurdish government are invalid. The FT quoted Ameer Abdillilah, a senior Oil Ministry official, as saying: "It is illegal for any party to conduct negotiations with any party outside the Ministry of Oil. We don't recognise them. We choose the companies". Firms found negotiate-ing with the Kurds, he warned, will be barred from bidding for the greater prize of projects elsewhere in Iraq, the first three of which the ministry is to award this month.

The dispute over control of minerals is a big test of the Kurdish region's future within a united Iraq. Turkey, Iran and Syria, which have restive Kurdish minorities of their own, are anxiously waiting to see who wins in the battle between the centre and the provinces.

Suleimaniya's hotels buzz with oil consultants who, free of the security constraints of Baghdad, are seeking to advance negotiations with the Patriotic Union of Kurdistan (PUK), Suleimaniya's ruling party. The Suleimaniya-based government only controls the eastern half of Kurdistan - territory under the control of the PUK. Their sometimes-rival, the Kurdistan Democratic Party (KDP), controls the west, and has a government based in Arbil.

Arbil also opened its doors to prospectors. On June 29, 2004, a day after the US ended its formal occupation of Iraq, a small Norwegian oil firm, DNO ASA, said it had signed a PSA with the KDP government "to explore for and develop oil and gas in Northern Iraq".

Barham Saleh, Iraq's Kurdish deputy prime minister, is the man with the uncomfortable job of bridging the divide between Baghdad and the Kurdish regional governments. Before his appointment, he was prime minister in Suleimaniya. He signed deals with both Turkish companies and led negotiations with the Australian firm, Global Petroleum Ltd, in November last year. He now chairs the Supreme Petroleum Committee (SPC), which determines the Oil Ministry's policy in Baghdad. The FT quoted him as saying that, while "the federal government needs to ratify any agreement to be legally binding", regional governorates must be consulted on Baghdad's plans and have the right to conduct negotiations.

Saleh's position contradicts that of Oil Minister Thamer Ghadbhan, who told the FT in July he would establish a single national oil company covering all of Iraq.

The two camps claim legitimacy for their positions in Iraq's interim constitution, the Transitional Administrative Law. Article 25 reads: "The Iraqi Transitional Government shall have exclusive competence in managing the natural resources of Iraq". But it also stipulates that decisions should be taken "in consultation with the governments of the regions and the administrations of the governorates".

The Oil Ministry shows no sign of bowing to the Kurdish position. One of its three tenders is for the $100m development of Khormala, the northern-most finger of the giant Kirkuk field, which juts into the Kurdish-controlled region.

It is unclear how far Kurdish leaders will push the issue. Taqtaq has ceased production. Global Petroleum says it is seeking Baghdad's approval before proceeding. If the Kurds go their way, a regional government in the southern oil producing zone might follow suit.