IRAQ IS A HARD PLACE

Visitors hoping to see WesternZagros Resources and Talisman Energy in action in Iraq can expect a barrage of security warnings. Starting in Calgary, they will be informed that Iraq is the most dangerous country on earth. Then they will be required to sign a legal consent form describing their travel plans as "extremely dangerous." Once they arrive in Iraq, they will be asked to keep a bulletproof vest handy at all times.

To get to Sarqala, the arid site where the companies are drilling for oil, visitors travel in a convoy of armoured Land Cruisers. Before departure, they will be warned that, in the event of a terrorist attack, they should do whatever company security officers (who carry machine guns) tell them to do-even if it seems counterintuitive. On the road to the site, they will learn it is in an area where thousands of Kurds were massacred by Iraqi troops in the 1990s, and many thousands more exterminated with chemical weapons dropped by Iraqi planes in the 1980s.

At the exploration site, after the convoy passes through a bomb-sweep beneath the watchful snout of a heavy machine gun, they will be told that the area is alive with unexploded land mines. But also that this is no deterrent to groups of marauding killers who are believed to be hauling weapons from Iran to insurgents in war-wracked southern Iraq. Should there be an attack, the visitors will be told to seek cover in one of the many concrete-and-sandbag bunkers spaced around the compound.

Suitably prepared, they will be invited into the mess trailer for an excellent three-course meal. Then, surrounded by jovial, backslapping Albertans, they will be pumped for news about the prospects for the survival of Stephen Harper's minority government.

No company faces such dangers without good reason. For WesternZagros, a small, new firm, and for Talisman, its larger, richer partner, the daunting risks of drilling in the world's most violent oil frontier are offset by the fact that it is also the world's most promising oil frontier. Iraq boasts the world's fourth-largest proven oil reserves (after Saudi Arabia, Canada and Iran), but much of the country has not even been explored. Thanks to the drive of WesternZagros's founder and president, Simon Hatfield, the two oil companies are leading the industry's push to start pumping money out of post-Saddam Iraq.

Rastam Aziz Abdul Kadir, the headman in the village of Hasira, first heard that an oil rig was coming his way late last March. There had been talk of oil in the area for as long as he could remember: In places nearby, crude seeps to the surface on its own initiative. But until now, isolation and seemingly endless wars blocked anyone from drilling here in Kurdistan. "After we saw foreigners around, word spread there might be oil where we grow wheat and barley," Kadir recalls, seated cross-legged on the floor of his house earlier this winter. "We had to thank God. We've had years of drought, and we've had to sell most of our livestock."

Just weeks after the rumours began spreading in Hasira, indisputable proof of their truth rolled through the village in the form of 200 truckloads of machinery and gear, bearing labels from as far away as Texas, Norway, Romania and, in a revealing number of cases, Alberta. Before long, Kurdish troops equipped with heavy machine guns and bomb-sweeping gear had established three security posts down the road, as well as a perimeter of razor wire, berms and guard-towers around a wide bowl of land about a kilometre north of the village.

Next, led by a vanguard of staff from WesternZagros (which operates the site in a production-sharing agreement with Talisman and the Kurdistan Regional Government), nearly 200 men set up housekeeping in portable barracks within an armed compound. Then, like a colony of earth-worshippers who believe they've located the holiest of holes, the foreigners erected a 50-metre-high altar of steel and cables above a spot of land about the size of a large pizza. Powered by a fleet of massive diesel generators, the drill has been grinding away day and night ever since.

All of which, as far as Kadir is concerned, is good news for Hasira. After thanking God, he thanks the Canadians for handing almost every able-bodied man in the village, himself included, a job. "I don't know if there is oil down there, and neither do they," he acknowledges. "But the difference between the time before they arrived, and now, is like the difference between night and day."

On the drill platform, the operation answers to WesternZagros's senior drilling foreman in Iraq, Gordon Kristensen, a 60-year-old from Swan Hills, Alberta. Since last summer, when temperatures on the site soared into the 50s, a team of Romanian drillers have pushed almost 4,000 metres down, with Kristensen hovering in a nearby trailer dominated by a computer monitor displaying 47 data feeds from both the rig and within the drill hole. They could hit oil any time-or never. But with five more drillings planned on its concession, which is almost half the size of PEI, company head Hatfield figures they'll get what they're after sooner or later.

Keeping track of the drilling operation is roughly as complex as flying a large passenger jet, Kristensen reckons-though with a far higher probability of severe accidents. The worst part of the job is dealing with people from a bunch of different countries who speak a tangle of languages. "I had to fire a local guy the other day," he drawls. "But when I told him the only thing I still wanted to see was his tail lights, he just stood there wondering what I was talking about." As for the fact he's doing all this in Iraq? "I had my concerns coming into a war zone," he admits. "But after a while, frankly, you don't even notice it. Guys come to meetings and put their pistols on the table, and you don't even think about it."

From a distance, the expensive-looking hunk of metal temporarily planted in the lobby of WesternZagros's office in Calgary looks like a badly weather-beaten sculpture by Brancusi. On closer inspection, the metre-high objet d'art proves to be a drill-head with three sets of dirty metal teeth, some of which look as though they've been mangled with a pickaxe. The $40,000 item has just been unpacked from a crate straight from Iraq (all currency in U.S. dollars). In a setting where companies usually park more conventional trophies, the drill-head sets a perfectly pragmatic tone for an upstart oil company intent on cracking Iraq.

Getting oil out of Iraq is something Hatfield, 54, has been plotting for many years. A U.K. native who trained as a geophysicist, Hatfield apprenticed in the North Sea oil fields. In 1978, Imperial Oil recruited him to work in the Canadian Arctic. In the early 1980s, he took a job with Exxon's global resources assessment team in Houston. At the time, the U.S. was patronizing Saddam Hussein's regime in its horrific war with Iran. Exxon considered Iraq a promising place, full of massive, under-exploited oil fields.

Hatfield, with his mild British accent, gentlemanly manners and agreeable looks, seemed like a good fit for Exxon in Iraq, which even today bears a British stamp from a half-century spent as Britain's principal oil-producing colony. Years of wars and mismanagement, combined with limited ocean access and poor pipeline infrastructure, had kept much of Iraq's oil underground, Hatfield realized. "The lights went on for me," he says. "I've been looking for opportunity there ever since."

The 1991 Gulf War and the ensuing United Nations-sanctioned trade embargo ended the country's commercial promise for Exxon and other U.S. companies. But Hatfield got to Baghdad in 1995, working for Chauvco Resources, a now-defunct Canadian firm that had fields in Canada and Argentina and ambitions in the Middle East. "The dance that was going on at that time was that the Saddam regime was inviting companies to seminars in Baghdad," Hatfield explains, "and then encouraging them to go home and lobby their governments to lift the sanctions. Everybody but the Americans was invited."

Hatfield's grail has since drawn him back to Iraq some 55 times. With every new trip, his relationships with officials within the Iraqi oil ministry-all-powerful since the oil industry was nationalized in the early 1970s-deepened. Before long, Chauvco was negotiating for oil contracts, and the Iraqis were expressing admiration for Canadian oil know-how, and for the country's non-confrontational stance in the Middle East, a key credibility-builder in differentiating Canada from the U.S. "The people in the ministry were people you could deal with. They'd been running their own industry for 20 years," Hatfield says of the friends he made in Baghdad in the 1990s. "The people above them within the Iraqi dictatorship were another story."

By the late '90s, Hatfield had become convinced that the country was being ruined by the dictatorship and international sanctions. With more than half of Iraq under constant surveillance by American, British and French warplanes aimed at protecting the Kurds and other groups from Saddam's genocidal tendencies, the entire country was a low-level war zone.

"It was one of the worst places I've been," Hatfield recalls of the darkest period under Saddam. "The sanctions had been in place for years and all the stocks of medicine were gone. There was widespread malnutrition. I've never seen a country where everyone was sick from hunger and where there was so much wealth. We took in suitcases full of amoxicillin on every trip."

After leaving Chauvco, Hatfield, acting as a consultant, attempted to drum up interest from various Canadian oil companies, including Talisman. He says he introduced the company to Iraq's potential around the time Talisman was enmeshed in controversy in another hot spot-Sudan, where a genocide was unfolding. But with Iraq under tight international sanctions, and oil exports permitted only through a United Nations oil-for-food scheme, Hatfield's was a lonely voice.

He got closer to his goal as a vice-president of Western Oil Sands, a Calgary-based company with a large stake in the oil sands. Hatfield got the green light to establish a small Iraq unit. It was a modest outcome for years of work. But when U.S. President George W. Bush suddenly announced his intention to liberate the country from the Saddam regime in March, 2003, Hatfield's Calgary perch proved to be the perfect place from which to get back to Iraq.

Six years and at least 100,000 civilian deaths later, the U.S.-led occupation remains bitterly controversial. So does the Bush administration's original, almost entirely specious, justification for the occupation-that Saddam was developing weapons of mass destruction while collaborating with the al-Qaeda terrorist network. Many in Iraq and elsewhere contend that the occupation is mostly about uncorking Iraqi oil. Even so, Hatfield strongly believes the U.S. did the right thing: "In my personal opinion," he asserts, after giving a passionate recitation of Saddam's atrocities, "it was liberation. And it was a long time coming."

The regime change was also, Hatfield acknowledges, the opportunity of his lifetime: "I immediately thought, 'Great-sanctions will come off. They will need a huge amount of foreign investment. And they will welcome it, because trade is the ultimate foil for war.' "

As soon as he reckoned the smoke had cleared, Hatfield was back in Iraq, travelling with hired security. In fact, as he discovered on a trip to the oil-rich Kirkuk and Mosul regions in October, 2003, the smoke wasn't clearing. "Things were very tense. There were U.S. soldiers everywhere. But people could fill their refrigerators and people could get medicine. And my friends in the oil ministry in Baghdad were delighted to see me."

In a few months, southern Iraq began disintegrating into a vicious conflict that meant oil development would be prohibitively dangerous. Maybe people had food in their refrigerators, but without electricity, the food was rotting.

Amidst the havoc, however, Hatfield and a few other oil strategists realized that Kurdistan, Iraq's little-understood northern region, home to five million people whose Indo-European language has set them strongly apart from Arabic-speaking southern Iraqis, was largely free of violence. And it was very quietly opening for business.

In the preceding decade, during which Iraqi Kurdistan enjoyed the shield of the "no-fly zone" enforced by foreign warplanes, the Kurds had built an army of their own. The Kurds-whose name means "warlike" in the regional languages predating modern Kurdish-were fiercely determined never again to be brutalized by Saddam. Any enemy of Saddam's was considered a friend of Kurdistan's. When the Americans and British invaded from the south in 2003, the Kurdish army, known as the peshmerga, marched from the north to help them. After Saddam was defeated, tens of thousands of pesh merga fighters steadfastly worked with the Americans to stamp out every local trace of the insurgency that was capsizing southern Iraq.

In Erbil, the capital of Iraqi Kurdistan, the Kurdish leadership pressured the new American-backed government of Iraq for self-rule. The strategy paid off handsomely when a redrafted Iraqi constitution granting Kurdistan sweeping political and economic autonomy was ratified in late 2005. Meanwhile, the Kurds were anxious to start doing deals with foreign oil companies, and not just as a way of saying "thank you" to those in Washington, Paris and London who had protected and liberated them from Saddam. As the Kurdish leaders freely admit, they wanted foreign oil investment in a hurry, to pay for weapons and to generate cash for local economic development. They also wanted to build international diplomatic support for their long-cherished plan for permanent political independence from Iraq. Foreign-owned oil wells, Kurdish leaders recognized, would represent a commercial bulwark against renewed southern Iraqi aggression.

But the final piece of information that drew Hatfield to Kurdistan was a bit of history and geography that he'd known all along. Ever since the days when the British ran the Iraqi oil industry, planners had almost entirely bypassed Kurdistan. Even after the world's first "super giant" oilfield was discovered in Kirkuk, on the southern edge of Kurdistan, in 1927, prospectors were largely prohibited from developing the geological trend running northward into Kurdistan. "There is a good chance that we could see fields with billions of barrels of oil, maybe tens of billions, opening up in Kurdistan," says Hatfield.

For decades, everyone familiar with Iraqi oil geography has known that there is oil in Kurdistan. But making the militant, secessionist Kurds rich was the last thing Saddam, and the British before him, wanted. The Americans, however, have no problem with it. After all, the U.S. Geological Survey estimates northern Iraq could contain 39 billion barrels of oil. And America needs oil-but the optics of American oil companies invading Iraq wholesale are not good. Far better, Iraqi and American officials seem to be signalling, that companies from elsewhere predominate in the first wave.

In May, 2006, Hatfield persuaded Western Oil Sands to sign a production-sharing agreement with the Kurdistan Regional Government involving payments of a reported $45 million over four years. That fee entitled Western Oil Sands to prospecting rights on its huge concession not far from the Kirkuk "super giant" field.

In 2007, however, the U.S. firm Marathon Oil bought Western Oil Sands. In part because of the political problem for U.S. oil companies in Iraq, Hatfield's unit was spun off as WesternZagros. (The first part of the name reflects the company's roots, the latter the Zagros Mountains in Kurdistan.) Western Oil Sands shareholders received WesternZagros shares as part of the sale. With help from private backers, the new company raised about $180 million.

In late 2007, however, the Kurdistan Regional Government ordered WesternZagros to team up with Talisman or face losing its concession. Having beaten almost every other international oil firm into Iraq, Hatfield was reluctant to be betrothed shotgun-style. But the Kurds were adamant: They wanted him to find a partner with deeper pockets than his own, so that larger fees could be extracted. Last June, Talisman announced it was handing the Kurds $220 million for a concession of its own, along with a $50-million payment to WesternZagros for a 40% share of its project. All this despite Hatfield's insistence that WesternZagros would have been perfectly able to go it alone without any help from Talisman.

Talisman's move raised eyebrows in the oil patch. After all, since taking a beating about its Sudan project, the company had announced plans to limit the number of regions it was active in. Then there was the discrepancy in fees. "The risk profile had changed by the time we arrived in Kurdistan," Paul Blakeley, Talisman's vice-president for international operations, explains. "This is a regime that is changing fast." In any event, Talisman's game of catch-up in Kurdistan was greeted with enthusiasm among analysts who track the company.

Alan Knowles, an oil and gas industry analyst with Haywood Securities in Calgary, travelled to Kurdistan last October to look at a promising drilling operation co-owned by Calgary-based Addax Petroleum. The trip convinced him that Addax has made "a nice discovery" and that Kurdistan offers impressive prospects for all the companies there, even given all the political and security risks. "There are country risks wherever you go, even Alberta," he says. "This is why there is a discount in the valuations for all the international players. But you can count the numbers of security incidents on one hand."

Sulaymaniyah, Iraqi Kurdistan's largest city, centres on its labyrinthian souk, around which settlements fan across hills rising into the serrated folds of the Zagros Mountains. Kurdish Iran is just over the eastern horizon. Kurdish Turkey begins not far to the north. The economy has boomed since the American occupation began. A five-star hotel tower is rising from the city's highest hill. Down below, the streets are lined with construction sites. Traffic is clogged with military and oil industry vehicles. The corridors of local hotels and government offices ring with the languages-Russian, Norwegian, French, Korean, Hindi, Texan, Albertan-spoken by the employees of foreign oil companies. Although there have been few terrorist attacks here, the roads around the city and throughout the region are studded with army checkpoints. Based on the astonishing quantities of guns people leave at security desks before entering hotels and public buildings, it is safe to assume most local men carry weapons.

Including the two blocks granted to Talisman and WesternZagros, the Kurdistan Regional Government has licensed about 20 foreign oil concessions so far, some to big players like TNK from Russia, Reliance from India, and Hunt from the U.S., and many to smaller outfits like WesternZagros, which even at the height of the commodity boom last summer had a market capitalization of under half a billion dollars. Because Iraqi oil maps place Sulaymaniyah province on a massive trend of petroleum-rich geology running through the Kirkuk field, many foreign companies, including WesternZagros and Talisman, are based here, rather than in the Kurdish capital, Erbil.

Some of the newcomers have already hit the jackpot. The Norwegian firm DNO, which, like Western Oil Sands, was one of the very first to start prospecting in the region, found 100 million barrels beneath its concession in 2006. It is now pumping about half a million dollars a day out of the earth. The oil is sold within Kurdistan; DNO says that it could increase production fivefold if an export pipeline link from Kurdistan is opened.

As government fees like Talisman's $220-million "capacity-building" contribution pile up like wedding gifts in a place where government is largely run along clan lines, corruption-bluntly evident in the spectacular proliferation of luxury cars in government parking lots-flourishes. In Calgary, Talisman's Paul Blakeley says his company's contribution has been deposited in a segregated account controlled by the Kurdish government, an arrangement he describes as being "as good as we would typically expect to see. It's almost first-class." In other regimes, he notes, money intended for public projects can be pocketed by politicians and elites with much greater ease. In Erbil, Herish Muharram, who left the U.K.-based charity Save the Children to become head of the Kurdistani Investment Board, candidly acknowledges the issue: "It makes me very nervous to see Iraq ranked after Somalia and Myanmar on Transparency International's list of the world's most corrupt countries," he says. "But at least I can say that my own office is not corrupt."

In Sulaymaniyah, the top local boss is provincial governor Dana Ahmed Majeed, a former geology student and onetime Kurdish intelligence officer with a lively sense of humour, six phones on his desk, a clutch of machine-gun-toting guards in his anteroom, an insatiable tobacco addiction, and a gilt-draped office whose splendour stands in remarkable contrast to the city's dilapidated general hospital. "Sulaymaniyah is one of the wealthiest governorates in Iraq," he boasts. "We've got marble, gold in commercial quantities, titanium and tourism. As a geologist, I can assure you we expect there is a lot of oil and gas here. I can also assure you that this is the most secure region in Iraq. We'll protect the companies that invest here."

In a meeting with WesternZagros officials in December, Governor Majeed acknowledged that the Kurdistan Regional Government is at odds with the government of Iraq about issuing licences to foreign oil companies. Although the federal constitution guarantees Kurdistan's extensive political autonomy, it doesn't guarantee oil rights. Those are being negotiated within a draft federal oil law that has been bogged down in the Iraqi Parliament for at least a year. Iraqi Prime Minister Jalal Talabani, a Kurd with a long activist pedigree dating to the days of guerrilla warfare with Saddam, is lobbying for Kurdish oil rights. But the Shiite parliamentary majority is unwilling to see Kurdish oil revenues relinquished from the federal treasury. Tension between the Kurds and the Shiites escalates with the arrival of every new foreign oil company in Kurdistan, leading some political analysts in Baghdad to say that the country risks a new civil war over the issue. It didn't calm nerves when Kurdish peshmerga were ordered to leave Khanaqin, a contested city, by Iraqi government troops last fall. In Kirkuk, not far from where WesternZagros is drilling, tension is so high that the area was excluded from participating in nationwide provincial elections in late January, for fear of conflict between Kurdish and Arabic communities.

Oil companies caught in this dispute endure constantly see-sawing signals. In the space of just one week in late November, Iraqi Oil Minister Hussain al-Shahristani, speaking in Kurdistan, confirmed Iraqi support for a pipeline to connect the region to the existing system that ships oil to the Turkish coast, news that boosted DNO shares. Then, four days later, speaking in Cairo, al-Shahristani said oil contracts signed by the Kurdish Regional Government are not recognized by his government in Baghdad. "Oil that is produced in any part of the country has to be handed over to the federal government, and the ministry of oil will export it," he told the Reuters news agency. "The revenues will go to the central budget." At Talisman, Paul Blakeley describes tension between the Kurds and the federal government as "one of the major uncertainties. This is something that they have to resolve internally. The way we manage it is we will limit our investment, and stage our commitment to the region."

The Kurds take a different view from al-Shahristani. "It will take 15 or 20 years for Iraq to become a stable democratic country. Until now, the federal ministries haven't even recognized their roles," Governor Majeed says. "Kurdistan can't afford to wait that long. We've told the foreign oil companies that it's up to them to get the job done. We've no choice."

The legality of its production-sharing agreements with foreign companies has been confirmed by experts on the Iraqi constitution, Kurdish officials insist. But asked whether Talisman, WesternZagros, Niko Resources and Addax Petroleum, the four Canadian companies with concessions in Kurdistan, risk disaster if the Iraqi government energetically opposes them, Governor Majeed responded with a bombastic, and not entirely reassuring, bit of sabre-rattling: "Thirty-eight countries defended Kuwait against Saddam Hussein during the Gulf War because they all had economic interests at stake in Kuwait," he said. "We view that as a reassurance."

If the government of Iraq refuses to recognize the agreements signed by the Kurds, while imposing its economic rights as the senior level of government, the United Nations has firmly signalled that it will respect the sovereign rights of the state-just as it did for Kuwait when the UN supported its defence against Iraqi invaders in 1991. Continued American support for the Kurds is also uncertain. For one thing, Turkey, a key American ally within NATO, adamantly opposes an independent Kurdish state along its borders, behind which Turkish troops have long fought Kurdish separatists. "For the rest of the world, oil and politics go hand in hand, but for us in Iraq, oil, politics and violence seem to be the order of the day," former Iraqi oil minister Issam Chalabi has observed. "The two Gulf wars and the resultant continuing violence took a heavy toll on our fields and crippled oil production infrastructure. And now, it is the ongoing rage between Baghdad and Erbil over oil ownership rights that has taken centre-stage."

Although the $50 billion spent on Iraqi reconstruction by the American government flooded both parts of the country with highly sophisticated weaponry, the government of Iraq benefited most, not least because the Americans provided Baghdad-but not Kurdistan-with a modernized air force. As the American troops prepare to leave, Baghdad is intensifying pressure on Kurdistan to relinquish oil rights, while also opening oil development in the south. The al-Maliki government has pushed hard to get the Americans out of the picture, many observers in Baghdad report, in order to deal with the Kurds on its own terms.

The value of the oil at stake in Kurdistan could either be modest or vast. But the risks to those who invest are clear, Hatfield agrees. "There's no doubt that the risks are severe. That's fully disclosed in all our reports."

But solving problems in Kurdistan-even when they involve gentlemanly hijackings like the Talisman deal the Kurds foisted upon Hatfield-is the easy part, he acknowledges. Keeping abreast of developments in war-ravaged Baghdad is just as important but far tougher, he says, which is why he has continued to travel there throughout the most dangerous periods of the current war. "There was one trip in 2006 that I only told my wife about after I arrived," he admits. At Talisman in Calgary, Paul Blakeley acknowledges that his company has few contacts in Baghdad. But he rejects the suggestion that Simon Hatfield and his connections in the capital represent a major resource. Instead, he says the government of Iraq will accept that Talisman-based on capabilities proven in countries such as Sudan, Peru and Colombia-can carry its own load. Even so, if the Iraqi oil ministry succeeds in grasping oil rights in Kurdistan, Hatfield's friends in Baghdad may prove to be the best assets Talisman and WesternZagros can lean on.

On a cool early-winter evening in Ali-Naji, one of Sulaymaniyah's most pleasant hillside neighbourhoods, Barry Holland, WesternZagros's local security manager, is tending a huge rib roast-freshly arrived from Alberta-as it barbecues on the terrace in front of the company's staff house. Out on the street, half a dozen Kurdish guards with machine guns shiver and exchange bemused glances as the party din grows and the stereo rotates through Blue Rodeo tunes: Only a bunch of Canadians would throw a patio party in this kind of weather.

Inside, the place has the feel of a fraternity house where the members have aged into jet-set workaholics, yet never moved out. Conversation mostly revolves around the oil industry and its extremes of travel, isolation and culture clash. As the party expands on the terrace, Steve, one of the IT guys, wanders downstairs and flips through a series of satellite channels. A handful of ghoulishly violent American films reel past on a massive widescreen TV. He's got a wife and kids in Alberta, he says. After months away from home, he hopes to see them soon. When asked what he is doing for the weekend ahead, he looks faintly puzzled. "We don't really get weekends," he says. "We just work all the time." Sure enough, toward the end of the evening, he's called out to work on an Internet glitch.

On the terrace, a tough-looking Scot in combat fatigues reels off some ghoulishly violent stories of his very own. Some of them date from his experience with the British Army during the invasion in 2003, others from his time afterward with an American security contractor in Baghdad. A number of people he'd known there were decapitated live on the Internet by insurgents, he says. Now, he's running local security for Niko Resources, a Calgary-based outfit gearing up to prospect on a concession in northeastern Kurdistan. When I ask him how safe Baghdad is for journalists, he offers to take me there for a thousand bucks a day-paid in advance.

Shortly before the meat is ready, two British women arrive. Dorreen Miller, the investor relations manager for WesternZagros, is obviously pleased to see them after a week on the road in Iraq, where women rarely attend business or social meetings with men. They're dressed like characters in Brideshead Revisited, the women say, because they've just been to a Kurdish wedding. Over glasses of wine, they explain that they run an aid group, funded by British charities, that promotes educational reform. They have an office right next door to the Western Zagros staff house. They fume about local corruption and how the government-despite all the money flooding into its accounts from oil companies-doesn't support educational reform. They suspect that a lot of the oil fees actually go into private hands. Then they fume some more about the oil companies themselves, which they think should do more for local communities by funding groups like theirs.

Stu Davie, a soft-spoken man who runs a WesternZagros program that sends Kurdish officials to the University of Calgary as part of a social responsibility effort, points out that the company does a fair bit of community work. "In fact, we're paying for a lot of people's educations," he demurs while he fiddles with his St. Francis Xavier ring. When the British aid workers suggest it's in the company's own interest to cultivate connections with local officials in this way, Barry Holland, the security director, jumps in with a joke about oil industry critics being paid with money from government oil royalties.

After a hearty laugh, the aid workers start to relax. The meat is ready. As everyone rises to join the lineup for food, Davie spreads his hands in mock supplication. "Look," he says. "We still haven't made a dollar in this place. Come and talk to us when we find some oil."

*****

Want to do business in Iraq? Don't forget your Maple Leaf

With trillions of dollars worth of its oil heading toward world markets in the future, chances are that Iraq, having yielded little but misery for decades, will finally begin sprouting business opportunities.

In the four years since the new federal government was forged, the country's budget has almost doubled, to $59 billion (all currency in U.S. dollars). The International Monetary Fund pegs GDP growth for the year ahead at 8%. The government is offering security guarantees for foreign businesses intrepid enough to take a look, and quite a few Canadian companies are doing exactly that.

Calgary-based Atco Ltd. was one of the first in, with a 2004 contract to co-ordinate the supply of 1,400 construction trailers used in the American-led, $50-billion reconstruction effort. Montreal-based Garda World Security, which provides security in conflict zones, also got in early. Last spring, Montreal-based Bombardier made a big breakthrough with a $308-million sale of 10 CRJ900 NextGen regional jets to the Iraqi government. And four Canadian oil companies- Talisman Energy, WesternZagros Resources, Addax Petroleum and Niko Resources-have invested in Kurdistan, Iraq's northern region.

As spending on public infrastructure grows, the opportunities are huge. When the Americans occupied Iraq in 2003, federal health-care spending was estimated at $22 million. This year, it will hit $5.6 billion. Scores of hospitals are being rebuilt, along with hundreds of clinics.

With committed investors still confined largely to the relatively peaceful north, and Iraqi officials continuing to confer with investors in places like Dubai, rather than Baghdad, for security reasons, business activity in southern Iraq remains stunted. But there have been signs of change in recent months. Last fall, the government signed major oil-field management contracts with both Shell and CNPC, a Chinese firm. Their job will be to try to modernize production. By year's end, 30 more companies had been approved to bid on the next round of contracts, but Calgary-based Nexen was the only Canadian firm among them.

Government contracts have themselves become a commodity for dealmakers with connections inside Iraq. Hence the creation last summer of the Iraq Development Co. of Canada (IDCC) by Richard Duffy, a globe-trotting Toronto-based entrepreneur, and Dean Nejim, a London, Ontario, investor with a burning interest in making money in his native Iraq. Duffy and Nejim believe Iraq offers enormous business possibilities for Canadians, because they are untainted by the U.S. and British occupation. Right now, they admit, there's not much more to the IDCC than a website and some office supplies in a rented Toronto suite. But Duffy's been to Iraq three times since meeting Nejim, each time building on government contacts to compile a list of contracts that Canadian firms are eligible to bid on. The most important thing about cutting deals in Iraq, says Duffy, is the little Maple Leaf badge he pins on his lapel.

"I don't go anywhere without it."

Duffy says IDCC's contract list has grown to about 100 projects-mostly in the telecom, health, construction, and oil and gas sectors, and almost all of them in Maysan province between Baghdad and Basra, Iraq's southernmost city. On the other side of the ledger, Nejim says, around a dozen Canadian companies have expressed interest in tackling the projects, which IDCC aims to manage once the deals are signed. Right now, Duffy and Nejim are focused on Great Pacific International Inc., a B.C.-based junior oil and gas player. Talks have started with EllisDon, a construction firm active in Kuwait and Saudi Arabia, Nejim says. Nortel, which has been active in Iraq for years, is also on the list. Next up? "I want to talk to GM and Chrysler," says Nejim. After all, gas-guzzlers aren't likely to run dry in Iraq any time soon.