It is an open secret that Iraqi authorities and Russia’s oil company LUKOIL argued about a part of the Western Kurna oil field for a long period. Moreover, LUKOIL Vice-president Leonid Fedun mentioned several times already that Russian oilmen would soon leave Iraq. First of all, they are leaving because of a highly probable war; and second, Russian oilmen are indignant at the attitude of the Iraqi bureaucracy.
Today LUKOIL direction confirmed that Iraq sent a letter saying about breaking of a contract with the Russian oil company LUKOIL. The information was also confirmed by LUKOIL’s partners for the Western Kurna development, Russian foreign economic association Zarubezhneft and state-run enterprise “Foreign Economic Association Mashinoimport”. The letter on breaking the contract was signed by Iraqi Deputy Minister for Oil Industry Hussein Al-Hadisi. The letter says that Iraq breaks the production division agreement concluded in 1997 concerning the Western Kurna oil field.
In accordance with the production division agreement, LUKOIL holds a 68.5% share of the project, 3.25% belong to Zarubezhneft and 3.25% - to Mashinoimport. Today leaderships of these companies declared that contracts broken this way violate conditions of the production division agreement. The Russian companies hope to get a confirmation from Iraqi Oil Ministry proving that this decision of the ministry is also an official position of Iraq. The production division agreement with LUKOIL and two more Russian companies had been approved by the Iraqi parliament. That is why it is not yet clear whether the Iraqi Oil Ministry has authority to break this contract. The Russian oil companies declare they will appeal to the international courts for protection of their rights.
In accordance with the production division agreement, the mentioned Russian oil companies are to develop the Western Kurna oil field till 2020 and invest not less than 6 billion dollars in the project within this period. However, after the agreement was concluded in 1997, Russian oilmen had to restrict their activity in Iraq for fear of violating the UN sanctions, as Russia supports the sanctions. This became a stumbling block in the relations between Iraq and Russian oil companies.
The Iraqi authorities tried several times to make LUKOIL start oil production, otherwise they threatened to allow Chinese oil companies to develop the oil field. By the way, China also actively co-operates with Iraq in the oil sphere. It was the refusal of the Russian oil company to start oil production that the Iraqi Oil Ministry considered “a default of the contract obligations.” Some time ago, LUKOIL President Vagit Alekperov declared, Russian authorities assured him that the oil company would retain the contract for the Western Kurna oil field development even if the regime changed in Iraq. Experts suppose that this statement became just a convenient ground for the Iraqi authorities to break the contract.
According to some sources, Iraq was extremely indignant at the offstage negotiations held between US Secretary of Energy Spencer Abraham and LUKOIL president at the Russian-American oil summit in Houston this autumn. As was reported, Abraham and Alekperov discussed possible guarantees that the USA could provide in Iraq after replacement of Saddam’s regime.
By the way, the 1997 agreement on development of the Western Kurna oil field was the first and the largest contract concluded by the Russian company after the 1991 Gulf War. BBCRussian.com calls it the only actually large contract between Russia and Iraq. Up to 600 thousand barrel of oil per day could be produced in the field. Experts say that LUKOIL’s original investment into the project were to make up 3.7 billion dollars.
Expulsion of LUKOIL from Iraq is obviously not a surprise for the world oil circles. A session of OPEC members was recently held in Vienna, where members of the organization graciously received statements announced by an Iraqi representative saying that “on the whole, if a company concludes a contract, but fails to fulfil it, the contract will be finally broken.” OPEC seems to be rather satisfied with the situation. Some time ago, OPEC high-ranking officials promised to punish Russia for its strike-breaker behavior on the world oil markets.
No doubt that is has been agreed long ago what companies will finally start oil development in the Western Kurna oil field. It’s obvious that despite all assurances of “Russia’s old friend”, President George W. Bush, it will be quite a problem for Russian oil companies to stay on the Iraqi oil market. However, the recent actions of Iraqi authorities with respect to Russian oil companies give Russia no chance for a maneuver. If the regime of Saddam Hussein doesn’t guarantee Russian oil interests any more, Russia will consequently negotiate protection of its interests with that subject of the international law which can offer such guarantees.
Experts and Russian diplomats are dispirited by the attitude of the Iraqi authorities and say that after this demarche Iraq will have almost no allies on the international arena. However, these statements are true just at the first glance. Saddam Hussein probably has reasons of its own to show Russia the door. Nobody even believed that Hussein seriously relied upon Russia’s assistance. But it’s not ruled out that the Iraqi dictator has achieved a goal which he considers actually important: he won unanimous and real support of the Arab world, whose relations with the USA seem to have seriously worsened. Under these conditions, Hussein doesn’t need Russia any more. Especially that in the present-day situation Russia has definitely taken a position on the opposite side of the barricade. This fact is proved by recent attacks of President Vladimir Putin upon Saudi Arabia and Pakistan. So, the Rubicon seems to be already crossed. And not to offend LUKOIL, it will be given some other oil field, certainly not so much profitable as the Western Kurna oil field.
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