Posted by: russiaoilandgas | August 13, 2007

Lukoil Contract to Develop Prized Iraqi Oil Field “Scrapped”.

oil gas iraq Russia russian lukoil contract saddam burningRussian oil company Lukoil suffered a major setback last week in its attempts to secure developing rights for the West Qurna oil field in Iraq.  Although Lukoil signed a contract with the now deposed Saddam Hussein which gave it rights to develop the field, Iraq will open all oil fields in the country to fresh, unrestricted tenders.  It had been rumored that Lukoil may be able to coerce the Iraqi government to allow it to develop the field by citing the existing contract while using as additional leverage the large debt Iraq still owes Russia for Arms the Soviet Union sold to Hussein.  However, Lukoil failed to make progress toward its aims during talks between the two sides in Moscow last week.

The Iraqi Minister for Oil, Hussain al-Shahristani, told Reuters, “There will be no specific talks with any company over any particular field. What will happen is that Iraq will announce the development of certain fields and all qualified oil companies can come and compete,” adding he hoped the parliament would pass new legislation opening the way for an open tender process when it returned from holiday in September.

Speculation has abounded among more cynical analysts that Lukoil was unlikely to have any joy in rekindling its old Saddam-era contract given Russia’s failure to support the US-led invasion of Iraq. While the US was attempting to economically isolate the Hussein regime, US companies were prevented from trading with Iraq.  However, that didn’t stop others, like Lukoil, from doing so, and the US energy giants certainly lost ground to their international competitors during this period. 

It is a commonly held view among commentators, journalists and analysts from the left leaning and liberal press that the latest Iraq war is little more than the US scrambling to control increasingly scarce hydrocarbon resources.  If following this theory, a “resetting of the oil table” was always likely to take place, whereby US companies that had lost ground by complying with the US led economic embargo would find themselves on equal footing with those companies who had made good during this time – contracts in place or not.

Despite the appeal of such a tidy theory, things aren’t so simple.  First, Iraq claims the contract was nullified long before the US-British invasion of Iraq. Shahristani, again speaking to Reuters, claimed: “This deal was signed and scrapped by the previous regime. There are documents in the ministry’s archive saying that the contract is terminated because its terms are not met.”  Lukoil, according to Shahristani, has done nothing to develop the field since the deal was signed in 1997, meaning the contract is effectively null and void.

Second, Lukoil might not be as dead in the water as the conspiracy theorists assume: even if we accept their view that the Iraq was less about ridding the world of a dangerous tyrant and more about Oil money, American oil company ConocoPhillips owns a 20% stake in Lukoil and this, along with the $10billion dollar debt the Iraq government owes the Russian government from arms sold to Saddam by the Soviets may yet leave Lukoil with a foot in the door.

To read all the quotations and a more in depth analysis, click here

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