The Race to Tap The Next Gusher

For most of his life, Khadir has honed the occupation he learned as a child: fighting in the Kurdish militia against Saddam Hussein's forces. He has been jailed seven times since he was 14 and has seen a favorite uncle executed. Now, at 32, he is perfecting an entirely new skill, which could change this region as much as the wars in which he has fought have: drilling for oil. Since late November, he has toiled about 30 ft. aboveground on the first derrick erected in Kurdistan in decades, by a Norwegian outfit using a Chinese rig, of all things. From the top, there is a panoramic view of the hills around his tiny village of Tawke, where 30 families eke out a meager living herding sheep. It hardly looks like the location for a major economic boom. "We are poor," he says, sitting on his bunk during a break between shifts last month, when TIME was invited for a rare visit to the oil operation. "We have nothing."

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But that could soon change--perhaps dramatically, according to oil engineers who have surveyed the region. Sheltered from the deadly mayhem around Baghdad, the economy of Kurdistan, the region that comprises the three northernmost provinces of Iraq, is already showing signs of vigorous growth. Turkish, British and Canadian oil companies have held talks with Kurdish officials in recent months to revive old oil fields and drill new ones. Oil has the potential to jolt Iraq's precarious ethnic balance by injecting sizable revenues and foreign investment into an area about twice the size of New Jersey. Much of the work is still exploratory, but Western engineers and Kurdistan's Regional Government believe that huge riches could lie underneath. Exploration had been dormant for decades--the region first languished under Saddam's oppressive rule and then was isolated from Baghdad for 12 years after the 1991 Gulf War. "There's a race on to get fields into production," says a Western consultant in Kurdistan, too fearful for his safety to be named. "People are very, very optimistic."

Ironically, the first winner isn't an oil giant from the "coalition of the willing" but DNO ASA, a small company traded on the Oslo Stock Exchange. DNO negotiated the rights in early 2004 to drill in about 1,500 sq. mi., inking the contract in the final week of the U.S.-run occupation of Iraq. DNO's managing director, Helge Eide, said he felt he "had to do it before the interim government came in," fearing Iraq's new rulers might strip the Kurds of rights to negotiate their own energy deals. It was a risky move, since politicians were bitterly divided over who would control Iraq's massive oil resources under a new constitution. Yet as that argument raged, DNO quietly hired the seismic company Terra Seis (Malta) Ltd. to survey its area. The results were stunningly clear. "We could tell very quickly that there was structure containing hydrocarbons," says Kevin Plintz, a Canadian geophysicist who owns Terra Seis and oversaw the work.