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Iraq faces political stalemate

But the lack of a clear winner threatens a sustained period of uncertainty for the country, which diminishes the chances of important energy decisions being made.

With 95% of the votes counted by 22 March, after a ballot held on 7 March, Iraqiya was in line to win around 91 seats in the 325-member Council of Representatives (parliament), compared with State of Law's 88, according to initial calculations reported by Iraqi media.

Given such a tiny margin of victory, and an unexpectedly strong showing by a political bloc supporting the radical Shia cleric, Moqtada al-Sadr's Iraqi National Alliance, it appears unlikely that any one political faction will garner sufficient support to hold sway in the new parliament – heralding the prospect of further paralysis and protracted bargaining.

With neither Maliki nor Allawi – favoured by the West to be prime minister – likely to be able to form a government without the backing of other parties, cross-faction negotiations could drag on for months. This is likely to result in further delays for the Petroleum Law, designed to create a stable investment climate for foreign investment in Iraq's oil sector.

In oil-rich Basra province, dominated by Shiites, the vote was overwhelmingly in favour of Maliki. Though Allawi himself is a Shia Muslim, he has rejected the sectarian bent of Iraq's politics over the past five years. Accentuating the sectarian divide, Maliki had painted his opponent as a front for Saddam Hussein's Baathist party, since he drew much of his supported from disaffected Sunnis.

Though Allawi's State of Law coalition was set to be the single biggest faction, the strong showing by Moqtada Sadr's faction, at an estimated 69 seats, suggests an increase in sectarian tensions is likely, with the latter potentially seeking concessions from Maliki in return for support.

This leaves the Kurds in a weakened position – with around 40 seats, too marginal to play the kingmaker role that had made them a powerful force in the last parliament. If the combined Shiite factions make a stronger claim on the disputed oil province of Kirkuk, the Kurdish MPs will have less political leverage in Baghdad.

The prospect of heightened tensions between the central government and the Kurdistan Regional Government (KRG) is a bleak one, given the range of issues that remain to be sorted out between the two sides. Oil minister, Hussein Shahristani, has refused to accept production-sharing contracts signed by the KRG, and the new political arrangement makes it even less likely that a new oil minister would be prepared to give ground on this issue.

The two main Kurdish parties claimed to have won at least six of the 12 parliamentary seats allocated to Kirkuk province, sustaining their bid to hold onto the oil-rich city ahead of a proposed referendum on its status. The central government says it should remain part of Iraq. Kirkuk, as one of the main oil producing regions, is set to benefit from the approval in mid-March by the Iraqi cabinet of a provincial oil refund law that will allocate $1 per barrel of oil back to the province that produced it.

In the meantime, international oil companies, Asian national oil companies and oilfield services players intent on benefiting from services contracts awarded last year will be hoping the country's fractious politicians let them get on with the job. Foreign companies have committed to increasing oil production at Rumaila, West Qurna and Zubair (PE 12/09 p11), which will form the backbone of Iraq's output increases that could – in time – make the country a rival for Saudi Arabia as an oil producer.

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