BAGHDAD, Nov. 9 (UPI) -- Iraq's strategic effort to become the world's leading oil producer has taken some bad knocks, with the defection of Exxon Mobil and other majors to independence-minded Kurdistan, and Wednesday's expulsion of Turkey's state oil outfit from an exploration deal.
But Russia seems more than ready to step in and fill the gap in foreign investment that Baghdad needs to rebuild and expand its oil and gas industry on which the country's future depends.
China, eager to add Iraq's oil to its ever-widening network of resource acquisitions in Africa and the Middle East, is also knocking on Baghdad's door to take over production deals awarded largely to Western majors in 2009-10.
Russia signed a landmark $4.2 billion arms deal with Baghdad in October during a visit to Moscow by Iraqi Prime Minister Nouri al-Maliki.
Russian President Vladimir Putin, driving to restore Moscow's influence in a region where the Soviet Union once held immense sway, pressed Maliki to allow greater Russian energy investment in Iraq.
Moscow media report Baghdad is considered inviting Russia's Lukoil and Gazprom Neft to take over Exxon Mobil's majority stake in the giant West Qurna 1 field in the south.
The U.S. company effectively relinquished its stake there when it signed up with the semiautonomous Kurds in October 2011 in a direct challenge to Baghdad's authority.
The Oil Ministry disclosed Wednesday that Exxon has informed the central government it wants to quit the $50 billion West Qurna 1 project in the south and sell its majority stake.
"Exxon's desire to pull out ... reflects the oil majors' growing disenchantment with southern Iraq and their contrasting enthusiasm for Kurdistan which has signed a flurry of landmark deals with Western energy giants," the Financial Times observed.
Lukoil, Russia's second largest oil producer, is developing West Qurna 2 with Iraq's state-run North Oil Co. Lukoil has a 75 percent share.
Gazprom Neft, the oil arm of Russian natural gas giant Gaprom, recently signed two exploration contracts with the Kurdish Regional Government. Gazprom reportedly told the Oil Ministry it had suspended work with the Kurds but it hasn't confirmed that and may be hedging its bets.
On Wednesday, Iraq signed an oil exploration deal with Lukoil and Japan's Inpex covering 2,100 square miles in the southern provinces of Muthana and Dhi Qar. The two agreed to invest $100 million.
So far, the Western exodus from southern Iraq, where two-thirds of the country's oil reserves of 143.1 billion barrels and natural gas holdings of 126 trillion cubic feet are located, has largely benefited Asian oil companies.
Industry sources estimate that by 2020 Chinese companies will account for 2 million barrels a day of Iraq's production, pegged at 3.1 million bpd in September.
Fatih Birol, chief economist of the International Energy Agency, said recently that "a new trade axis is being formed between Baghdad and Beijing."
The IEA predicts Iraqi production could hit 8.3 million bpd by 2035.
This relationship is part of a shift that is tipping the balance of power in the energy world" away from the United States to China, the Financial Times said.
When Exxon defied Baghdad and signed an exploration deal with the Kurds in October 2011, it triggered an exodus of oil majors from southern Iraq to the more liberal regime, and potentially more lucrative contracts, in Erbil, Kurdistan's capital.
These included Total of France and Chevron of the United States.
Royal Dutch Shell dallied with the Kurds for a while but eventually backed off breaking with Baghdad. It continues to operate in the south along with BP and other majors.
However, the disenchantment among the majors who signed fixed-fee, 20-year production agreements with Baghdad underlines how their patience is running thin over inept governance, suffocating bureaucracy and infrastructure delays.
These developments have heightened a long-simmering dispute between Kurdistan and Baghdad over control of oil exploration and production. This rift has immense political ramifications because the Kurds have long sought independence.
Oil exports from their own enclave would give them the economic basis for statehood that could signal the break-up of the federal state that emerged after the 2003 U.S. invasion.
It would also encourage other Iraqi regions unhappy with Baghdad's domination to seek more autonomy.
The most prominent is the Shiite-dominated south where most of Iraq's oil reserves lie -- right next to Iran.
