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 Friday, 17 January, 2003, 17:46 GMT
Russia strikes Iraq oil deal
Iraqi oil field at Beiji
Iraq's decrepit oil industry needs foreign investment
Iraq has awarded a major oil contract to a Russian company, in what is seen as a step towards mending relations between the two countries.

Two further agreements have been initialled, promising another two Russian firms a share of Iraq's oil revenue.

Last month sharp words were exchanged between the two countries, when Baghdad cancelled a $3.7bn contract with Russia's largest oil company Lukoil.

The new oil contracts will boost relations between Iraq and Russia at a time when Baghdad is desperate for allies on the UN security council.

Oilmen caught in geopolitics

Moscow has consistently opposed the threat of American military action against Iraq - and has argued that Iraq is co-operating with UN weapons inspectors.

But relations between Moscow and Baghdad were dented in December, when Iraq abruptly cancelled the Lukoil contract.

The official reason given by the Iraqis was that Lukoil had failed to start development work - something that is forbidden by UN sanctions.

But political motives may have been behind the decision: Baghdad was angry with Lukoil executives for talking to Iraqi opposition leaders, and angry with Moscow for voting in favour of the latest UN resolution on Iraq.

Lukoil still in the lurch

The new contract allows Stroytransgaz to develop block four in Iraq's Western Desert, once UN sanctions have been lifted.

The two initialled contracts were with Soyuzneftegaz for the 100,000-barrel-a-day Rafidain field in southern Iraq and with Tatneft for block nine in the Western Desert.

"I would interpret these deals as Iraq desperately trying not to lose what little support they may still have left after their recent hardline attitude towards Lukoil," said Paul Collison, an energy analyst at Brunswick UBS Warburg in Moscow.

But the status of the Lukoil deal to develop the West Qurna two oil field is still unclear.

Lukoil representatives - currently in Baghdad for talks - said they had won back the deal, while Iraqi officials indicated that there were still disagreements.

Russian deputy energy minister Ivan Matlashov said "the door is still open for Lukoil", and he expressed his hope that the contract would not be awarded to any other company.

Iraq's oil reserves are second in size only to those of Saudi Arabia.

See also:

12 Dec 02 | Business
19 Sep 02 | Business
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