While the bill is the fruit of a hard-fought compromise and will centralise oil revenues in Baghdad, it gives legal sanction to the Kurds' ambitious programme to develop their own energy resources.

Meanwhile, the violence raging in Arab communities will continue to scare off international oil firms thinking of investing in southern Iraq.

"The Kurds have largely achieved what they had set out to achieve," said Alex Munton, a research analyst at the Edinburgh-based energy consultancy Wood Mackenzie who has been following the negotiations.

Under the terms of the oil law, which is expected to go before parliament in the next two months, Iraq's oil industry will be overseen by a Federal Oil Council and an independent national oil firm.

Revenue will be concentrated in a federal account, and redistributed to provinces on the basis of their populations, which would give the Kurds around 18 to 20 percent of the national cake.

This represents a concession from the Kurdistan Regional Government, which wanted to retain revenues from newly-developed fields on its territory, but in return they have won the right to oversee development.

"The initial contracts will be the responsibility of the government of Kurdistan then, within a certain period, these shall be sent to a federal committee," said Kurdish government spokesman Khalid Saleh.

"If the contract complies with the criteria, it will be implemented. If the committee has comments on it, it will be referred to a technical committee -- not a political committee -- for assessment," he said.

In practice, this means the Kurds can lock in the progress they have made in luring in foreign capital and push ahead with oil exploration in the only area of Iraq which investors see as relatively safe.

A Norwegian oil firm, DNO, came to an agreement with Kurdish authorities even before the US-led invasion of Iraq of March 2003, and last year confirmed that it had struck oil in Tawke.

Tawke's wells could soon pump 50,000 barrels of crude per day for the firm, and this, combined with the reassurance offered by the new oil law, could spark wider enthusiasm for Kurdish oil, Munton said.

In agreeing under the new oil law to place their revenue in Iraq's federal account, "what appears to have happened is that the Kurds have had their previous contracts confirmed", he said.

"What this means for the Kurds is quite significant. This will create greater legal certainty with respect to the contracts that have been issued."

Already, aside from the adventurous Norwegians, some Turkish and Canadian firms have shown an interest in Kurdish oil. But what of the rest of Iraq, where the ongoing war has stifled any sign of investment?

"Under the approved law, oil will become a tool that will help unify Iraq and give all Iraqis a shared stake in their country's future," said US ambassador Zalmay Khalilzad in his reaction to the draft.

"This draft legislation provides the legal framework to allow international investment in the Iraqi oil and gas sectors," he said, on an optimistic note.

Before the US invasion of Iraq, critics of the policy often accused the White House of wanting to steal Iraq's oil for its own firms. In reality, however, US and British oil giants have been reluctant to get involved.

"The main thing is the security context in central and southern Iraq, and until there's a perception that it has improved drastically, none of the major companies will be getting heavily involved," warned Munton.

In the meantime it is not US majors, but their state-owned competitors from traditional rivals China and Russia that have shown the most interest, seeking to reactivate deals sealed under ousted dictator Saddam Hussein.