MOSCOW - Despite some
reservations, Russia has officially welcomed the
transfer of power in Iraq and pledged to develop
relations with the Iraqi interim government. Now that
Russia's oil major has indicated plans to pump crude in
Iraq sooner rather than later, Moscow seems to perceive
events in Iraq in terms of its global oil game.
On the record, the Kremlin was all positive
about the Iraqi power transfer, which took place on
Monday. Russian Foreign Minister Sergei Lavrov described
it as an "important step". Russian Deputy Foreign
Minister Yuri Fedotov pledged to boost ties with
Baghdad. "We are open to developing contacts and
communication with the new Iraqi authorities," Fedotov
stated. And in a released statement, the Russian Foreign
Ministry said: "Russia is ready to assist the Iraqi
interim government on multilateral as well as on a
bilateral basis."
However, Moscow's praise was
not without reservations. "In the coming months [Iraq]
will have to prove its ability to keep the situation
under control," said Konstantin Kosachev, head of the
international relations committee of the state Duma, the
lower house of the Russian parliament, in reference to
the poor security situation.
Moscow's
reservations have been attributed to the fact that
Russian oil firms have the most to lose in post-war
Iraq, as they had signed contracts worth US$4 billion
with the Saddam Hussein regime to develop oil reserves.
Russia has also been reluctant to write off 80% of
Iraq's debt, as suggested by Washington. Iraq's foreign
debt is estimated to be anywhere from between $60
billion to more than $130 billion, of which $8 billion
is owed to Russia.
However, Russian
entrepreneurs make no secret that they expected more oil
deals from the Iraqi power transfer. "Russian business
is positive about the transfer of power to the interim
government, which should become a partner for talks on
oil contracts," said Yuri Shafrannik, head of the
Russian-Iraqi Business Council. "A lack of legitimate
authority in Iraq did not allow Russian companies to
begin the implementation of their contracts there,"
added Shafrannik, who is also Moscow's former energy
minister.
Moreover, Vagit Alekperov, president
of Russia's top oil company, LUKoil, told reporters that
LUKoil planned to begin oil extraction in Iraq in 2005.
He said that LUKoil would continue a series of
negotiations with the Iraqi oil ministry to resolve all
outstanding issues. Alekperov also pledged to train up
to 3,000 Iraqi oilmen at LUKoil's production facilities.
LUKoil has insisted that its West Qurna
mega-deal remains valid. The 23-year multi-billion
dollar contract to develop the West Qurna-2 oil field
was signed in 1997 between Iraq and a LUKoil-led
consortium. Under the agreement, the Russian group will
develop reserves put at 7 to 8 billion barrels. Saddam's
government canceled the contract in February 2003, just
before the US-led invasion.
In March, Alekperov
traveled to Iraq to discuss the West Qurna contract.
LUKoil and the Iraqi oil ministry signed a memorandum of
understanding for LUKoil to help rebuild the oil
industry, and to train oil workers, and reportedly
reached an "understanding" on West Qurna, in which
LUKoil owns 68.5%. Alekperov has stated that he was
"grateful" to Russian President Vladimir Putin for
bringing up its Iraq contracts at high-level discussions
with Washington.
Russia's Middle East
designs Meanwhile, LUKoil's plans to begin
pumping crude in Iraq in 2005 seem to indicate the
company's ambitious vision of Middle East expansion.
Earlier this month, LUKoil announced plans to open a
regional office in Dubai, in the United Arab Emirates.
The office of the LUKoil International Trading and
Supply Company (LITASCO) will coordinate activities in
Saudi Arabia, Iran and Iraq and is expected to open in
September.
Geneva-based LITASCO, LUKoil's fully
owned subsidiary, manages LUKoil's oil trading outside
Russia. For instance, last March, LITASCO signed a
contract with Refinery Associates of Texas, Inc to
deliver petrol and diesel fuel to Iraq.
The
LITASCO office in Dubai is expected to oversee a $200
million joint project company between LUKoil and Saudi
Aramco. The venture, Luksar, 80% owned by LUKoil and the
rest by Saudi Aramco, is to develop a gas field of some
30,000 square kilometers in the northern part of the Rub
al Khali desert, in the center of Saudi Arabia.
LUKoil, which also has projects in Iraq, Iran
and Egypt, is the only large Russian oil company that
pumps crude oil abroad. LUKoil aims to raise overseas
crude production up to one quarter of its total oil
output within a decade, with plans to boost its annual
oil output to reach 2.2 million barrels per day (110
million tons a year) by 2012.
LUKoil's decision
to establish representation in Dubai comes in the wake
LUKoil chief executive officer Vagit Alekperov's pledge
to limit domestic crude oil sales in Russia. Alekperov
claimed that oil sales in Russia were unprofitable,
notably when international oil prices were high.
Meanwhile, LUKoil's drive toward Middle East
hydrocarbon riches might be viewed as a part of Moscow's
more pro-active policy in the region. For instance, when
Lavrov welcomed the transfer of power to the Iraqi
interim government on June 28, he also revealed a
Russian initiative to work out a collective security
initiative for the Gulf region, which it would base on
"confidence-building measures and mutual security
guarantees".
On the other hand, Moscow's global
oil game seems to involve interaction with the US and
the Organization of Petroleum Exporting Countries
(OPEC). Russia and OPEC pump 45% of the world's crude
oil between them. Yet despite its growing importance as
a producer and exporter, Russia has been reluctant to
join OPEC.
Moreover, earlier this month, Russia
declined to increase crude output following OPEC
president Purnomo Yusgiantoro's call for non-OPEC oil
producers, including Russia, to use their spare
capacities and raise oil supplies. In response, the head
of Russia's Federal Energy Agency, Sergei Oganesyan,
said that Russia "is producing as much as it can".
In the meantime, after visiting US Energy
Secretary Spencer Abraham reiterated calls for Russia to
boost oil supplies to the US earlier this month, Moscow
pledged to increase oil output and exports regardless of
world prices. "If the oil prices are high we will use
this opportunity, we will boost production," Finance
Minister Alexei Kudrin announced. "In the event of the
price decline, we will not try to artificially prop it
up, since such actions will hamper economic growth
worldwide," Kudrin said.
Abraham also said that
Russia should develop a northern export pipeline that
would link West Siberian oil fields with an Arctic port,
possibly Murmansk. In response, Russian Prime Minister
Mikhail Fradkov told Abraham that Russia was interested
in gaining a 10-12% share of the US crude oil market.
Earlier this month, Fradkov vowed to integrate
Russia's energy sector into global energy systems,
develop new oil fields and gain access to new markets.
He reiterated Russia's interest in building new pipeline
projects to carry oil through the Baltic Sea and east
towards Asia.
The call to increase export
capacity was a main point in Putin's state of the nation
address in May. Abraham praised Putin's determination to
speed up the approval of new pipeline routes. "Putin's
address, in which he called for an increase in Russia's
oil export capacity and approval of new routes, I
believe is very positive news for energy markets in both
the medium and long term," Abraham reportedly commented.
Russia's export capacity through the state-owned
Transneft pipeline monopoly is running at almost maximum
capacity. Although oil exports by rail are on the rise,
no significant rise can be expected until more pipelines
are built. Therefore, Moscow's global oil game still has
its limitations, at least for now.
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