- The Washington Times - Tuesday, April 4, 2006

Russia’s largest oil company, Lukoil, is looking to the formation of a new Iraqi government as an opportunity to deal itself back into that country’s huge West Qurna oil field, regaining a lucrative contract it lost in December 2002 as coalition forces were building up for the 2003 invasion.

Iraq’s foreign ministry, seeking Moscow’s help with some troublesome neighbors, has noted that Russian companies such as Lukoil understand Iraq’s oil industry and environment because of their long history in the country.

“We hope the formation of a new government in Iraq will allow us in 2006 to start negotiations on recovering West Qurna,” Andrei Kuzyaev, president of Lukoil Overseas, said at a conference in London in February.

Iraqi Foreign Minister Hoshyar Zebari asked for Russian help in November to end interference in its internal affairs from Syria and Iran, and has said that Lukoil offers Iraq needed technological and financial capabilities.

Lukoil and Saddam Hussein’s government in 1997 signed the $3.7 billion development and production contract for the giant West Qurna field, one of Iraq’s largest with an estimated 11 billion to 15 billion barrels located in North Rumaila, west of Basra.

The Iraqis abruptly canceled the contract in December 2002, charging, not without merit, that Lukoil had failed to honor a provision requiring that it spend at least $200 million on the field within the first three years of the contract.

However, the energy newsletter Middle East Economic Survey reported at the time that the Iraqis were angry because Lukoil executives were hedging their bets on the expected U.S. invasion, even as Moscow was working at the United Nations to head off the attack.

Deputy Prime Minister Tariq Aziz was quoted in Canada’s National Post on Dec. 17, 2002, saying, “Lukoil went to Washington to get assurances that their contract will be implemented after the removal of the Iraqi regime. … Such conduct cannot be accepted.”

Despite losing the contract, Lukoil worked at maintaining good relations with Iraqi administrations that succeeded Saddam.

During the summer of 2004, it gave Iraq millions of dollars in humanitarian aid and provided training for Iraqi oil specialists at its facilities in Western Siberia and Volgograd, according to the Energy Information Administration, a department of the U.S. Department of Energy.

Lukoil also pledged to train 150 Iraqi specialists annually over five years at its Russian facilities.

Such aid is a “starting point for Russian companies to begin implementation of oil projects in Iraq,” Lukoil President Vagit Alekperov said in September.

Now, with a permanent government to be established in Baghdad, Lukoil has reason to hope for the best.

The Iraqi oil ministry announced in June that an inter-ministerial committee would be set up to review oil contracts signed under the Saddam regime, and that it would renegotiate existing oil-development contracts with France’s Total as well as Russian and Chinese energy firms.

The newly elected parliament, meanwhile, is expected to create a petroleum-investment law in line with the new constitution once a government is in place.

“The process of negotiation is a joint process between the government and the provinces, but the ownership of the oil is for the Iraqi people,” Deputy Prime Minister Ahmed Chalabi, who has served as oil minister since December, told Platts, an industry publication.

Lukoil may think its prospects are improved by the participation of U.S.-based ConocoPhillips, which now holds a 17 percent stake in the Russian company and has announced plans to increase its stake to 20 percent. However, U.S. officials say the decision will be made by the Iraqis, not the Americans.

“We’re not involved in this decision-making,” a State Department official said. “Oil policy and decision-making regarding Iraqi oil assets are firmly under the control of the Iraqi government.”

Jamal Qureshi, lead analyst at the Washington-based energy consulting firm PFC Energy, noted that the United States does have advisers at the oil ministry who assist Iraq in its decision making.

“Who will have authority to negotiate these contracts will largely depend on how centralized the government will be,” he said. “But with Iraq on the verge of civil war, the prospects are not good. There is a need for a more secure environment.”

Insurgents have attacked pipelines and other oil installations nearly 300 times since 2003. Of those, 95 took place last year.

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