Russia seeks to muscle in on Iraq oil

Sept. 16, 2009 at 4:32 PM
share with facebook
share with twitter
Sign up for our Energy newsletter

BAGHDAD, Sept. 16 (UPI) -- The Russian energy minister's visit to Iraq earlier this month, as Baghdad prepares to auction off oil contracts to foreign companies in December, underscores how Western oil majors may be cut out of potentially lucrative production deals.

This stems in part from Prime Minister Nouri al-Maliki's differences with the surge of violence that has accompanied the U.S. military withdrawal from Iraq.

This has raised anti-U.S. sentiment in many quarters at a time when Big Oil is battling to secure access to some of Iraq's biggest oil fields and the vast untapped reserves that could surpass even Saudi Arabia's riches.

Meantime, energy-hungry China and Japan have also been making moves in Baghdad to grab a piece of the action, adding to the discomfort of the big U.S. and European oil giants.

They want to open up an oil industry that they once controlled until it was nationalized by the Baathist regime in 1973.

Russia is keen to reassert the influence Moscow had in Baghdad during Saddam Hussein's rule, which ended with the U.S.-led invasion of March 2003.

Under Saddam, the Russians were all set to get access to Iraq's oil. But his fall from power left those highly favorable deals dangling.

So Moscow is seeking to get them taken off the shelf and secure a stake in Iraq's oil business, which until recently was widely expected to be taken over by the Western giants.

The Russian energy minister, Sergei Shmatko, made it clear when he met Maliki during his visit to Baghdad on Sept. 7 that he hoped for a favorable outcome for Moscow in the December auction when the 25-year oil contracts will be up for grabs.

According to Jane's Intelligence Weekly, published in London, Maliki had indicated to the Russians when he visited Moscow in April that reactivating some of the big Saddam-era contracts might be in the cards.

However, Jane's said: "It is unlikely that Moscow will be able to reactivate the Saddam-era contracts, but even merely a strengthening of cooperation in the energy sector would indicate that Maliki remains interested in keeping Russia as an important counterweight to Western energy firms.

"His government's economic plans depend entirely on energy export revenues and given uncertainty about the United States' long-term political commitment to Iraq, preserving links to Russia appears to be seen in Baghdad as an expedient policy."

In that regard, Moscow wrote off 93 percent of Iraq's $12.9 billion debt last February. That was a move that Jane's concluded "was likely to be aimed at encouraging Baghdad to agree to large-scale Russian participation in the Iraqi energy sector."

Iraq needs in excess of $50 billion in foreign investment to get its long-battered oil industry back into full production. Most of that is expected to come from the oil majors in return for access to Iraqi oil.

But at Iraq's first oil action in June, only one contract was signed. Big Oil wanted $4 per barrel of whatever oil they produce; Baghdad offered $2. The oil companies stepped back.

Some industry officials believe that at the upcoming auction the Iraqis, increasingly desperate to get their vital oil exports flowing again to complete reconstruction, might this time be more amenable to making concessions.

Iraq is putting 10 oil fields and one gas field up for auction in December. Oil Minister Hussain al-Shahristani, a former nuclear scientist thrown in prison by Saddam, had stressed that the state's priority right now is bolstering production as quickly as possible -- from the current 2.4 million barrels per day to 6 million bpd by 2014-15.

That, Jane's noted, "appears unrealistic given the little progress made in attracting foreign investment in the post-Saddam period."

The deteriorating security situation across Iraq as the U.S. withdrawal moves forward has also undercut Shahristani's hardball position.

Oil companies may be less eager to start investing large sums and putting employees at risk if the government cannot smother the continuing violence, the worst in Iraq for almost two years.

Related UPI Stories
Trending Stories