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Russia frets over old Iraqi oil
contracts
By Michael Lelyveld
BOSTON - International energy experts are urging
the United States to honor Russian oil contracts signed
with the former government of Iraq to keep confidence in
the stability of investment.
Russian oil
companies have reacted to the Iraq war with statements
ranging from outrage to pessimism at their prospects for
realizing contracts signed with the Saddam Hussein
regime. Many believe that the coalition partners will
invalidate the oilfield contracts in favor of their own
national firms.
Last month, Nikolai Tokarev, the
chief executive of Russia's state-owned Zarubezhneft oil
company, told the daily Vremya Novostei, "We're clearly
going to have to cut our losses on anything we have
there and anything we could have had." Tokarev added,
"The Americans haven't gone into this war intending to
share with anyone." He estimated Zarubezhneft's losses
at $150 million to $180 million in contracts already
signed.
Last week, Leonid Fedoun, vice president
of Russian giant LUKoil, turned the doubts into a
threat, telling the daily Kommersant that his company
would sue any rival for Iraq's huge West Qurna oil field
for at least $20 billion. In 1997, LUKoil signed a
23-year contract for the field as the head of a
consortium that included Zarubezhneft. The project could
produce 600,000 barrels of oil per day, Reuters
reported.
Fedoun said, "Nobody can develop this
field without us in the next eight years. If somebody
decides to squeeze LUKoil out, we are going to appeal in
the Geneva arbitration court [the International
Commercial and Industrial Arbitration Court], which will
immediately arrest this field." The case could last up
to eight years. Fedoun also threatened to have tankers
of Iraqi crude halted to keep from losing the $3.7
billion investment in West Qurna.
The remarks
are indicative of the suspicions about coalition motives
for the war and the size of Russia's economic engagement
with the former government of Iraq. Russia's fears fall
into at least three categories, dealing with access to
reconstruction contracts, Iraqi debt and its oil
contracts.
On the contract issue, Reuters
reported this week that Russia negotiated the largest
number of oil agreements with the prewar government,
although it is unclear how many represent contracts or
preliminary protocols.
The news agency counted
at least four Russian deals, calling for investments of
at least $7.8 billion and production of over 1.2 million
barrels per day. None of the projects could be
implemented as long as United Nations sanctions remained
in force. In addition, Russia hoped for $40 billion
worth of deals under a long-term cooperation accord.
But some analysts see Russia's worries as a
matter that goes beyond its own financial interest. In
an article for The Middle East Economic Survey last
week, London-based energy consultant Florence Fee said,
"One important issue that will confront the United
States in these circumstances, should it not recognize
these Russian agreements, will be: How can it argue for
the sanctity of contracts in Russia for foreign
[including US] investors if it is not willing to uphold
the sanctity of valid Russian agreements in Iraq, albeit
signed during the Saddam Hussein regime? Foreign
investors everywhere will be watching its decision with
great interest."
Analysts note that the status
of Russia's contracts remains far from clear. The Iraqi
government said that it had rescinded the LUKoil
contract for West Qurna on more than one occasion. It
first blamed LUKoil for not honoring the agreement to
develop the field, although to do so would have meant
breaking sanctions. The government then apparently
relented but canceled the contract again after Russia
held talks with the US on Iraq's future when and if the
regime fell.
When or whether the contract was in
force seems to be an open question. But Robert Ebel,
director of the energy and national security program at
the Center for Strategic and International Studies in
Washington, agrees with Florence Fee on the issue of
contract sanctity.
Assuming that the contract
was valid, it should legally outlive Saddam, he said in
an interview with RFE/RL. "If we have concluded that it
was an agreement between a recognized government and a
private oil company, how can you say that it has no
validity?" To do so could have a chilling effect on oil
investments elsewhere around the world, he said.
Ebel added that governments and regimes have
often changed in countries where oil companies have
long-term contracts, saying, "Even then, a signed
contract is a signed contract and survives a change in
governments."
Although the resentment of Russian
oil executives has been aimed at the US-led coalition,
it is not clear that the US will make oil field
investment decisions that go beyond near-term
reconstruction. Ebel said, "We have to be very careful
of not being seen as making the call."
At a
London meeting on April 5, Iraqi exiles and US officials
agreed that international oil companies, including those
from Russia and France, should play a leading role in
reviving the Iraq's oil industry, according to Reuters.
A statement after the meeting said, "The country should
establish a conducive business environment to attract
investment of oil and gas resources." It did not
elaborate on the specific question of the Russian deals.
But some Iraqi opposition leaders apparently
feel that Russia provided the Saddam regime with support
and should not be rewarded. Last week, Yevgenii
Primakov, president of the Russian Chamber of Commerce
and Industry, blasted the threats of unspecified Iraqi
opposition figures to cancel Russian contracts, the
RIA-Novosti agency reported.
The former prime
minister said that "these are self-proclaimed leaders
who decide for the country in advance, take a long shot,
and try to set down the rules. It is nonsense."
Copyright (c) 2002, RFE/RL Inc. Reprinted
with the permission of Radio Free Europe/Radio
Liberty, 1201 Connecticut Ave NW, Washington DC
20036
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